Are Your KPIs Adding Value?
As technology has advanced, there seems to have been an explosion of KPIs in companies over the past few years. Talk to anyone in business about how they manage or know what direction they are headed in and I’m sure the response will include some reference to their KPIs. In fact, I would hazard a guess the number of KPIs most businesses have is quite large. One article I read gave 67 examples of KPIs for e-commerce! What can be measured can be improved, right? But in today’s age of information overload, can any one person really look at 67 indicators and assess what needs to change in the business to drive improvement? And then once everything is assessed, is there time to implement the improvements needed?
Let’s look at what KPI stands for – KEY performance indicator. By using the word “key” there is an inference it is essential to understanding the business and help gauge if things are moving in the right direction. The cornerstone of a business is its strategic plan, the long-term view of what it wants to be when it grows up. It is the guiding force in making decisions about what to do (and not do). So, I would argue that KPIs should work hand in hand with the strategic plan.
In my post about the Balanced Scorecard, I referenced the four perspectives on the scorecard: Customer, Internal Business, Learning & Growth, and Financial. At its heart, this is what every business is concerned about, including non-profits. Do our customers see us as we would like, do we run an efficient operation, are we positioned to change & improve, and are we financially successful? Tie these perspectives to your strategic plan with 3 to 4 good KPIs for each and now you have something that is KEY to your business. It’s the compass you will need to ensure you are moving in the right direction. And it is manageable, especially if you are a busy financial executive with multiple things needing your attention. Looking at 12 to 16 KPIs isn’t a huge drain on time and if something isn’t trending the way it needs to, a deeper dive into the underlying reasons is possible.
Now for all you analytical junkies out there that think I’m advocating throwing all those other measurements in your business out the door, don’t jump to conclusions. What I’m saying is they really aren’t key in reference to the strategic plan at a high level. You still need to provide direction to the employees down the line, so they know what they should be focusing on to drive success. There are things you need to consider when selecting what measures you are going to use so here’s my short list.
Ensure those measures tie back to the high level KPIs and the strategic plan, and that both you and the employees understand how they tie back.
Make sure there is ownership of the measurement and that the employees can do something to improve it. There is nothing more frustrating than being held accountable for a measure but the ability to invoke change doesn’t exist.
Don’t pad the list with measures that are easily obtainable. You want to stretch your employees and push them to innovate.
In the same vein, don’t make your measures so out of reach that the employees become discouraged and want to give up the fight.
There is a fine balance in selecting KPIs and corresponding measures to help you achieve the goals and objectives in your business. Choose carefully and wisely. Analysis paralysis is very real and using all your time and energy looking at a litany of numbers instead of taking action doesn’t advance your success.