We hear about Key Performance Indicators in business, the NHS, education, and most public and private organisations. Individuals and collectives are managed, monitored and measured by KPI targets. But what is a KPI, and how can we navigate the KPI Jungle?
In simple terms, a KPI or Key Performance Indicator measures how well an individual or how well a company or business unit is performing compared to its strategic goals and objectives.
Selecting the right ones is vital if a manager needs to guide an individual in the right direction for them to deliver a correct outcome. The trouble is that there are many 1000s of KPIs to choose from, and companies often struggle to select or format the right ones for their business.
Unfortunately, many companies get their KPIs completely wrong; they enter the KPI Jungle and fail to deliver results – measuring everything that walks and moves but nothing that matters or simply copying the metrics others may be using.
Here’s How to Create a KPI
- Always start with your strategy. A KPI needs to fit into a context, and your strategy should be the basis that everything and everyone works into with a cause and effect process.
- List the strategic performance questions you need to answer; this establishes what you need to know as the context to develop small-scale achievements.
This high-level approach enables you to create the best KPIs to help you answer your strategic questions.
From experience, many Managers miss this high-level approach and plumb down to the tactical level, thereby entering the KPI Jungle.
An example of how to break out of the KPI Jungle: A Sales Director/Manager may need to launch a new service and gain traction in a market sector. What strategic information must they acquire for the company and its sales team to achieve this objective – what questions need to be considered and answered?
- What businesses operate in this market sector?
- Where is our service applicable?
- Who are our competitors?
- How do we differ?
- How do we penetrate the market sector?
- Who are our first enablers?
- What level of penetration can we achieve in year 1?
- Where do we need to be in year 3?
They can only create meaningful KPIs for the Sales Team at a tactical level.
These may look like this:
- Identify X number of prospects in our market sector/geographical location per period
- Find opportunities where our service can add real value to a prospective customer and how
- Identify who we may be are competing against in delivering our service to each prospective customer and how we differ
- Engage with the prospective customer, qualify the opportunity, establish a network of contacts and build a business relationship
- Understand the needs of each contact within the relationship
- Define what resources the company may require to achieve a sale
- Demonstrate our service and gain buy-in
- Achieve X number of sales per period
- Define where, when and why sales were not achieved and how the business can learn from this analysis
Warning: everyone in a business should use KPIs, not just the Sales Team, to inform decision-making, performance, and reporting. If, as a manager, you simply use them as ‘carrot & stick tools’, you’re lost in the KPI Jungle.
Remember to relate KPIs to your strategy, a plan of action or policy designed to establish context and achieve a primary or overall aim. Avoid directly starting at the tactical level; a small-scale action serves a larger purpose. The recipient needs to understand how their accountability and actions will directly affect the organisation, then establish what they need to do to achieve the desired result.
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