KPI’s

Ever tried to take a journey in your car without a dashboard, consulting a map or having a Satnav? No, me neither but that is the effect of running a business without Key Performance Indicators (KPI’s) to show you where your business is heading. Like driving a car, you may also want to know what resources you have, when you need to change direction and how far you need to travel to reach your goals.

Why do so many business owners set off on their business journey without having KPIs in place? Often, it is because they have not set off in business without the effective habit of starting with the end in mind (thank you Stephen Covey) and knowing the journey to be taken or the mission they are trying to achieve. This might be developed over time but in many cases business owners end up simply “winging it.”

So, what should we as business owners be measuring? This will depend of our individual businesses and what goals and objectives each of us have set. Once we know the journey and what we need to reach our destination we can choose the measures essential to measure progress, ensure we are heading in the right direction and the business is working efficiently.

Whatever we choose however the clue is in the first letter, K. The measures must be Key, essential to the success of the business, the need to be measured, not the nice to measure! Superfluous measures are simply a waste of time and effort and could be damaging, especially if used to micro manage staff. Nothing breeds cynicism or contempt faster than using poor measures to encourage staff.

KPI’s should be a combination of both leading and lagging measures. Leading measures will help indicate what is likely to happen to your business. A common measure is the Net Promotor Score, which asks respondents to indicate, on a 1-10 range, how likely they are to recommend your product or service. You take the positive scores (9&10) as a percentage of the total and deduct the negatives (1-6) as a percentage of the total. As long as the result is a positive and not a negative all is good. You often see this kind of question when you complete an online task. Other leading measures may include customer or staff surveys or other types of customer reviews.

Lagging measures include many financial measures, such as profit and loss or cash in the bank. These show the results of activities in the past and decisions the business took even further back. They are good for showing where you have been but not necessarily useful in spotting the iceberg on the horizon.

To conclude, as a business owner, consider the objectives you have set for yourself and your business. Decide how progress towards those goals is to be monitored and then choose a limited number of (essential) Key Performance Indicators to drive and manage your journey.

Written by Paul Dallibar, Gordian Solutions.