Everyone has heard about key performance indicators – measures which give you a brief understanding of how your business operates and creates value for customers. Three essentials that each CEO is watching are revenue growth, costs and cash flow. But those KPIs are on the top of the iceberg. Underneath there are many other, much more strategic KPIs which can be revealed and can serve as a lighthouse to help you sail on restless seas and oceans to strengthen your resilience and reduce vulnerability. But the key question here is how to find them.
Have you heard about the concept of a strategy map? The strategy map is a simple visual tool that helps you decompose strategy objectives like “cost reduction by 5%” into smaller and manageable ones like “waiting time reduction by 3%”. It presents logical, cause-and-effect relations between objectives and clarifies the value stream through domains like finance, production, people, technology etc. The power of this tool is to present business strategy on a very tangible level and what is more, provide a transparent way to achieve it.
However, you will not be able to control your objectives without proper measures. Those measures we call Key Performance Indicators – KPIs. Below I am presenting my top seven principles for KPIs that must be met.
KPIs are like a compass
Do you have your strategic objectives already shaped? Wonderful. Do you know how to measure them for driving growth? Each of the established objectives should be followed by one well-defined and tailored KPI. I would be far from creating various KPIs for one objective and then linking them for making sense of it. Simplification is a buzzword here for not losing crucial metrics from your radar. Too many will only distract you and blur the straight interpretation.
KPIs reflect business dynamics
The next thing worth remembering about KPIs is that they must be dynamic. KPI which doesn’t change frequently is totally useless, especially in a fast-moving business environment. Your resilience is as good as you can react to appearing obstacles and disruption. Ideally, you should be able to track progress daily to make adequate decisions.
KPIs are standardized across the organization
Standardization is your ally to ensure that people are looking from the same perspective or seeing the same picture. Keep handy, for all users, KPIs’ descriptions, and examples of how they can leverage them at work to improve performance. Due that people within your organization can use a common language and easily discuss chances and challenges in achieving similar results.
KPIs show what “good enough” means
Maybe it is not very political, but targets or goals should not be stretched. They should be realistic. Maybe you would say that to be successful you must be very ambitious, but frequent setbacks might have a very negative influence on your and others’ motivation (read more about the topic in my previous post). The experience of achieving goals strengthens people’s confidence, which might flourish as an improvement for future performance.
KPIs are easily accessible
If you want people to start using a specific tool or device, you do not hide it, do you? On the market, there are plenty of reporting platforms or software that can provide people with direct and easy access to information. Links to those tools should be placed on the intranet in a visible place. In addition, the information about reporting system should be included within onboarding materials.
KPIs are communicated
Sounds obvious, right? Often, it is not. Many times, even though we have KPIs and strategies in place, our employees are not aware of them. Some ideas stay on the management level, and they are not cascaded down. Regarding the strategy and goals, the organization should keep in the loop all employees, because everyone participates in its growth, and everyone is needed to create a value stream for customers. Because success is nothing more like the sum of small efforts and small steps achieve daily by individuals.
KPIs are used on daily basis.
Last but not least. Finally, people must feel the benefit of checking KPIs daily in making better decisions and choices. This is the hardest part of the entire process. Changing people’s habits and behaviours is not piece of cake (here you will find some strategies for change management). Design processes in a way to force people to use KPIs. Otherwise, you can spend billions on developing a new strategy and implementing new technology, and all those efforts would be a waste, just because nobody is interested in using it.