In our business of consulting and training consultants to get started in their business there have been varying degrees of reliance on key performance indicators, or KPI’s. The reason the degree of emphasis on these little beauties changes, is due to the strength and validity they have, and how well they are used to motivate – not demoralize – a team.
The challenge we have seen, is many business are misusing their KPI’s. Whether it’s by trying to focus on too many different metrics or struggling to achieve consensus, the true value of the most important KPI’s is getting lost in the shuffle. Remember, they’re considered key for a reason – only the most critical factors should be considered. If your goals are down to the actual tasks each person does, you have likely dug a little too deep!
One of the biggest pitfalls is that KPI’s are being used as 2-dimensional dashboards, i.e. they are projecting what has happend in the past. Gross margins, net profit percentage, sales growth, they’re all financial indicators of past performance. Rather than looking backwards, KPIs should be based on the future, and set in a manner that provides a goal for the team or individual to achieve. What drives sales? What drives profit? Set the goal on the actions that will produce the outcomes you are aiming for.
A great tip for setting some solid peformance goals that promote the right behaviours is to ensure all the departments, teams or groups within a company are aligned, and essentially all benefit from the goal. A solution to set a KPI that accomplishes this, is to think more broadly on key items, not getting caught up into micromanagement. Remember, goals can change. You don’t have to be perfect on the first handful of KPI’s you produce. Get the input you need, set the targets and report on them but make room for yourself to expand or reduce the scope, and heck, start over if it doesn’t work. The goal of KPI’s is to promote visibility to performance and success – if its not doing that, then change the metric it until it does.
As drivers for business improvement, KPIs should be:
1. Easily calculated and easy to report.
2. Focused on the most critical metrics – not the tiniest details.
3. Visible to all employees and teams, not just those formulating the strategy.
4. Supported at the senior leadership level and driven from the top down.
5. Adaptable and flexible – the goal is to drive results.
6. KPI’s should never be static nor should they be permanent.
Item 6 on the list above could be where much of the difficulty with effective use of KPI’s rests. As they shouldn’t be static or permanent, capturing the necessary data across a company presents challenges, particularly if it’s not held within core business systems or a data warehouse.
According to a survey by Gartner, only 31 per cent of business leaders had a usable dashboard to offer visibility of their most important metrics. Making sense of the data is only possible if you can easily see it before you, which is why an innovative business intelligence solution can be so valuable.
Enabling the contribution of KPI data from different business units and locations, Tableau, Torch, and Microsoft BI offer tools to collate, aggregate and display KPIs using visual dashboards. Go to SolomonBI.com to learn about setting up a consulting business with the right KPIs for success.