Posted on 24 May, 2018 | 5 mins
We love KPIs. So much so that we’re always looking for key performance indicator examples, good or bad, to share with small businesses. So when SavvySME offered to write a guest blog post about that very subject, we jumped at the chance to get some more real-world stories straight from the field. Hope you enjoy!
A long-standing and common issue we come across when we talk to business owners and executives is the difficulty they have determining whether their current performance is on track to achieve their operational and longer-term strategic goals and objectives.
Often our conversations with clients start something like this: “I have to convince my board members, managers or business owners that we will achieve our goals. How do I do this, and how do I give them evidence to show that we are on track to do so?”
The answer? KPIs. Most businesses have some sort of performance measures or KPIs. However, choosing the right measures is fraught with difficulty. Managers often struggle with finding meaningful KPIs, and then find it difficult to obtain buy-in from management and staff. The result is KPIs that measure activities and not outcomes, become vague and meaningless, and lack ownership from key stakeholders.
Firstly, it’s important to understand the true purpose of KPIs. Meaningful KPIs provide objective evidence that shows the extent to which actions and decisions lead to the achievement of organisational goals.
So, let’s go through some of the most common mistakes we see people make when setting KPIs for their business.
Mistake 1: KPIs aren’t specific to your business
The first mistake relates to how businesses identify the KPIs that they intend to use. Often this is done by compiling a list in a haphazard manner, through brainstorming sessions, searching the net or by adopting ‘off the shelf’ KPIs that other organisations use.
The problem is that these KPIs are generic and not specific to their business and their individual objectives. It does not allow the business to focus on what matters to them, and they are certainly not aligned to their strategy.
They also tend to be meaningless or very difficult to measure, and usually include fluffy words such as ‘effective’, ‘improved’, ‘reliable’, ‘efficient’, etc.
9 Spokes top tip: You can use your data dashboard to find the KPIs that matter most to your business. You’ll see tangible, measurable business metrics—like your daily, weekly and monthly sales, gross profit and staff performance—that let you be more specific with your KPI setting and tracking.
Mistake 2: You focus on activities not results
Another critical mistake is to use KPIs that focus on business activities. For example, ‘number of customer interactions’, ‘number of items produced’ or ‘hours worked’ are all activity-based measures.
Why is this a mistake? Because it focusses on tasks rather than results. For KPIs to be truly effective, they must focus on the desired results. This includes short-term objectives as well as long-term strategic goals.
Some examples of results a business may want to monitor include ‘customers value our products and services’, ‘our people are engaged’, and ‘our customers have great experiences with us’. See how these are focussed on the desired result rather than on activities?
When we look to develop measures around the results we wish to achieve, it forces us to seriously consider the end-state that we want to reach. This, in turn, makes it easier to determine meaningful measures for those results. Using the above examples, to get the result of:
- "customers value our products and services:" we may consider measuring Net Promoter Score or an organisational reputation measure
- "our people are engaged:" we might consider measuring staff satisfaction, or employee turnover rates
- "our customers have great experiences with us:" we could measure customer effort or customer journey cycle time.
The measures are focussed on the results that we want to achieve. Of course, we can then set specific targets for each of these measures.
9 Spokes top tip: To make sure you’re focussing on the right improvement areas, consider using the 80/20 rule for setting KPIs. A simple analysis can show you if your most time-consuming activities are aligned with your most important results.
Mistake 3: There’s no buy-in and ownership of KPIs
Staff and stakeholder buy-ins are fundamental; without them, these people will not use the KPIs to help guide their business decisions, and ultimately won’t be active in helping your business meet its objectives.
We’ve found the most successful approach is to get keep staff involved in determining not just the measures but also the desired results of the organisation—at all levels. Ultimately this should paint a picture of the organisational day-to-day and strategic objectives throughout the business, and allow everyone to see alignment from their day-to-day activities through to the organisation’s high-level strategic purpose.
Our experience shows that by getting stakeholders to identify and agree on the desired results, they will accept the KPIs that are identified to measure these same result areas. This is additionally true when staff and management appreciate that the KPIs will not be used as a tool to ‘punish’ them.
9 Spokes top tip: Buy-in isn’t a one-way street. To improve engagement of your KPIs, make sure you’re listening to those you want buy-in from, address their concerns and be prepared to change your KPIs if staff or management make valid points. Stakeholders are more likely to ‘own’ KPIs if they feel they’ve played some part in their creation.
Mistake 4: You’re searching for the ‘perfect measure’
When identifying measures of your key results, the single most important thing to consider is not whether a measure is the ‘perfect measure’ or whether a measure has ‘perfect integrity’. What’s important is whether the measure has enough accuracy and reliability to be trusted as a source of information that will lead to making better decisions. There is simply no such thing as the ‘perfect measure’.
As we mentioned earlier, performance measuring is about continuous improvement and focussing on the things that matter. When that becomes embedded in the organisation, it becomes an organisation with a high-performance culture that achieves its goals and objective.
9 Spokes top tip: Each member of your team can set up their own data dashboard and track the KPIs that matter most to them. Embed a goal-orientated culture by letting people see the progress they’re making, in a visual way, whenever they want.
This post was written by guest blogger Rilind Elezaj, Marketing Specialist at SavvySME. He has a passion for sharing things that can help businesses grow successfully.
To track and measure your KPIs, you can sign up for a free 9 Spokes data dashboard. With your very own dashboard, you’ll see how your business is performing in all the areas you decide—from staff performance to sales and cash flow—on one screen that’s accessible at any time. A few good KPIs and a business dashboard are the perfect combination for improving your business performance.