Measuring business performance is key to business success. Tracking business metrics, also known as key performance indicators (KPIs) is one of the methods for measuring business performance. A vital part of tracking the progress of business goals and growth of the business.
Having a measurable way to track a businesses performance can prove how well the business is achieving key business objectives. They can help lower process costs, improve productivity and increase efficiency.
What is a Key Performance Indicator?
A Key Performance Indicator also is known as KPI or KPIs is a value used to measure how well a business is achieving its key objectives. Using quantifiable data, and sometimes additional qualitative data, each value is linked to a specific business outcome. It is this link that differentiates KPIs from metrics, and what makes them ‘key.’
They can be used across an entire organisation at various levels, and are not just reserved for strategic managerial positions. It is worth noting that KPIs are not goals themselves; they are the value by which you measure your goals.
KPI Examples
KPI should be simple, and easy to measure.
- The sales team may want to track a number of things such as new sales generated, the average value of each sale, the number of sales per location, total revenue, the list goes on!
- The customer service department may want to record how long customers wait on hold to speak to an advisor or the percentage of calls that result in positive feedback or resolution.
- The marketing department may want to track the various marketing platforms they use, and so will measure factors such as platforms are generating the most ‘click-throughs’ or engagement levels.
- The HR department may want to measure staff turnover and the quality of applicants.
How to Measure KPIs
As you can see from the above examples, KPIs are very specific and could clearly be linked to an overall goal. For example, a marketing goal could be to create more engagement through social media. This would then be measured by the KPIs tracking their social media marketing platforms.
It is important to remember then, that KPIs should not involve any brainstorming. KPIs aren’t to be randomly selected – or just simply ‘thrown out there’ – they should be clearly linked to business strategies and objectives. Keeping these objectives and strategies clear and concise is also a priority. All too often, companies will have strategies that are like a short novel, so keep it simple. Depending on your size, one page should suffice.
Now, you want to define exactly the questions that you need answering in reference to your strategy. For example, if your aims are to improve customer satisfaction, you will be asking questions such as: which processes contribute most to customer satisfaction? Your KPIs will then seek to provide you with the valuable data you need to answer these questions.
Lagging and Leading KPIs
There are also different types of KPI – lagging and leading.
Lagging KPI: Measurement of performance from a past event – financial metrics are a good example. They don’t, however, act as solid predictors of future results.
Leading KPI: Provides guidance on future results. For example, if you allocate a higher budget to training staff – you will develop talent and increase staff effectiveness and productivity. You will then want to ensure that you put in place a way to measure whether you meet your expectations.
The best thing to do for a business is to have a good balance of both leading and lagging indicators.
Using KPIs to measure business processes
They can be also used to measure whether your business processes are working or not. For example, you could measure how many instances the process is used throughout the year, and so conduct a seasonal analysis. This would highlight any differences month to month, and so this would allow you to prepare your business accordingly i.e. hiring extra staff, or buying more stock.
You may also use it in business processes to record the average time to complete each process. This will give you an indication of whether the process is contributing to shortfalls or missed deadlines. You may find that it might be a single step within the process that is causing the delay, and so you may need to cut out certain steps and change them for something more efficient.
With today’s technology, KPIs can actually be measured on real-time dashboards. This is particularly useful for business processes – acting as an early warning system for potential problems!
Why are they so important?
We’ve talked about how to measure KPIs, the different types, and how they can be used to measure business processes, but why are they so important to a business? What more do they achieve that business metrics don’t? The answer is, so much more.
Culture of Growth
Conversation starters. They bring to light areas of potential improvement that you may not even know needed improving. And if tracked in real-time, these conversations can come about on a daily, rather than weekly or monthly basis – and so KPIs are the perfect addition to an organisation that cares about continuous improvement.
Strengthen Morale
Strengthen employee morale. KPIs act as both a goal post, but also as an acknowledgement of hard work. The larger an organisation becomes, the greater the distance between company achievements and the individual’s efforts. KPIs are great at showcasing accomplishments both for individuals and teams.
Performance Management
How can you manage something without measuring and monitoring procedures? KPIs are essentially the equivalent of a red button flashing on the dashboard. If the red light is flashing – it’s time to do something about it! The idea of KPIs is that you monitor them often (daily if you can!), to ensure that you’re able to make changes regularly and when required.
Ensure Stay on Track
KPIs are important for ensuring that teams and employees stay on track, and are all working towards the one common goal of the business. It’s sometimes easy to stray – but having a clear, concrete value makes it easier for each individual or team to focus on the part they play towards the bigger picture.
Improve Business Performance
If you aren’t already, KPIs really should be a feature of your business – whether you’re a one-man-band or a larger corporation with several teams of employees. Use KPIs to improve overall business performance.
If you’re just starting out and haven’t yet thought about KPIs, OKRs or other ways to measure business performance this article should hopefully help you see all the benefits its offers business.
It’s time to start embracing the well-known acronym and what it can do for your business!