For most startups, one of the hardest parts of running a business, is measuring the right data to make better business decisions. Most startups don’t even know what Key Performance Indicators (KPIs) are. Key performance indicators are quantifiable measurements, agreed to beforehand that measure the progress of teams, departments, or companies toward set goals. KPIs are used to manage performance. KPIs allow the people in the organization to focus on meeting or exceeding those KPIs.
Most companies have bottlenecks on its ability to deliver, interpret and analyze data properly. However, most companies don’t realize they are collected the right data but just aren’t measuring it correctly. Here are 5 tips for creating and measuring successful KPIs.
Tip 1 : Develop Standard KPIs
May companies are working with the wrong measures, some of which are incorrectly termed key performance indicators (KPIs). Very few organizations monitor their true KPIs. They have either not been recognized or have been gathering dust in some database.
When you put a dollar sign on a measure, you have already converted it into a result indicator. The true KPI lies underneath the surface. KPIs can be monitored hourly, daily or even weekly depending on the company. A monthly, quarterly or annual measure can’t be key to the business if it measured so infrequently. KPIs tend to be current or future-oriented measures as opposed to past measures. Most companies measure past indicators. After a company defines and understand what KPIs are, a timeline and model can be developed.
Tip 2: Good and Bad KPI Development
If a key performance indicator is going to be of any value, there must be a way to accurately define and measure it. “Generate more repeat customers” is useless as a KPI without some way to distinguish between new and repeat customers. “Be the most popular company” will not work as a KPI because there is no way to measure a company’s popularity or compare it to others.
It is also important to define the key performance indicators and use the same definition from year to year. For a KPI if “increase sales” a company needs to address whether to measure dollar value of sales or how many units were sold.
Companies also need to set targets for each KPI. A company goal to be the “employer of choice” might include a KPI that measures turnover rate. After the KPI as been defined as “the number of people who were terminated for performance or quit on their own” a way to measure it can be set up by collecting data from HR. Another example would be “reduce turnover by 5% per year” is a clear target that everyone can understand and be able to take action on.
The following are examples of good and bad KPIs
Good
- Title of KPI: Employee turnover
- Defined: The total of number of employees who resign for whatever reason plus the number of employees terminated for performance reasons, and that divided by the number of employees at the beginning of the year.
- Measure: HR will query the database and provide department managers with turnover reports either monthly or when requested.
- Target: reduce employee turnover by 5% per year
Bad
- Increase Sales
- Defined as change in sales volume from month to month
- Measure by total sales by region for all regions
- Target as increase sales each month
This KPI is really bad because it does not provide details of measurement. The KPI is not clear on how to measure the goal because increasing sales could be in units or dollars.
Tip 3: Once Defined, what is next?
Once a company has defined good and relevant KPIs, what should be done with them? KPIs can be used not only as a performance management tool, but also as a form motivation. KPIs give everyone in the business a clear picture of what is important and how they contribute to the end goal. Management should be focuses on meeting or exceeding these goals. KPIs can be posted across the office such as the lunch room, break room, conference room, room, and even on the company’s website. Each post should indicate what the target goal is and show progress. The visibility will help employees understand where and how they contribute to the goals.
Tip 4: Impact of KPIs
Properly measuring KPIs can have a massive impact on companies.
- Strategy
- The discussions and thought that go into developing KPIs bring clarity and understanding to any management team.
- Strategy Into Action
- KPis combined with tactical actions give a clear roadmap to everyone in the company. KPIs are used to stay on track and to monitor execution.
- Aligning Departments
- Most companies develop silo functions that are more concerned with their own success than they are with achieving the company’s overall goals. But developing KPIS and strategy align the company together. Focusing on KPIS forces departments to work together which breaks down he silos.
- Communication
- The process of defining and measuring KPIs gives each department the opportunity to contribute to the overall success. It gives executives the ability to communicate with functional managers about how to achieve strategic goals. It also gives functional managers the ability to provide feedback to executives about progress.
Tip 5 : Conclusion
These tips should really help a company move forward and the chances are significant if KPIs are implemented. One thing to note that data is always evolving. Remember to revisit your successful KPIs and see if you can tweak or redefine them to improve. The idea of KPIs is to continue to improve over and over again. That is how companies stay on top for years.