Setting up KPIs is an easy subject to talk about, yet defining exactly the right KPIs for a specific business can be dreadful at times.

However, no company can afford to ignore KPIs - they are important because they assist to be on track with accomplishing business goals. KPIs unite different teams towards meeting a common objective - but only if they are clearly defined and easy to understand. Choosing the right KPIs for your business consumes time. So, don’t be discouraged if you cannot figure them all out in ten minutes.

KPI - short term for Key Performance Indicator, is a measurement of activity that unveils how a business or a team is performing against their set goals.They are the most crucial metrics that help measure the successfulness of each activity carried out in order to achieve the goals set by a business. These are measured against a specific target or a benchmark, adding context to each activity that is being measured.

It is also important to know that all measurements are not equally important and are not necessarily is a KPI. If any measurement of activity or metric does not directly influence the achievement of set goals, then that is not a KPI.

Furthermore, measuring the KPI metrics alone won’t help a business. A company must invest time and resources to interpret the underlying story that KPI metrics are trying to tell. Only when you are able to understand and make changes to your activities toward achieving company goals, KPIs will add value to a business. The real benefit occurs when KPI provides you with knowledge that is actionable.

So how can you make sure that the KPIs you look at are the right ones for your business? How can you guarantee that they provide meaningful insights to plan the next cause of actions of your business operations, to ensure they are on track towards meeting the business goals and objectives?

Here are few guidelines to follow though when defining KPIs that delivers actionable insights for your business:

Same KPIs aren’t of value or relevance to all businesses. They vary from one company to another and as the company grows over time, they too will evolve. There are two key factors which have a significant impact on the KPIs of any business.

Business model - is the conceptual structure supporting the viability of a business, including its purpose, its goals and its ongoing plans for achieving them Business growth stage - Every business has a lifecycle. It refers to the various stages of development of a business. Each stage has its own unique characteristics and the focus of business activities will reflect the present phase of the lifecycle.

Although KPIs differ from firm to firm, researching industry benchmarks and getting inspiration on what might work for you is a good practice recommended for all businesses.

KPIs come in three different types:

The business KPIs Department or team KPIs Individual KPIs

Another type of metric that needs to be taken into consideration is Supporting Metrics. They are not KPIs, but measurements that will compliment the KPIs by providing helpful context. Supporting Metrics define if you’re meeting KPIs in an efficient manner.

Eg: The number of sales closed in a particular month is a KPI and the number of emails sent out promoting your services in that month is a Supporting Metric (The number of emails sent isn't' directly affecting company’s ROI yet it helps track the actions carried out to achieve the number of sales which has a direct impact on the ROI)

The number of KPIs you track should be limited. Having too many KPIs to monitor and measure keeps your team away from being focused and united. Ideally one overall KPI that’s important for the entire business, and then a few relevant KPIs for various departments and few individual KPIs that are aligned with the primary business KPI may work wonders.

KPIs can be defined using the IPA Rule. This rule stands for Important, Potential improvement and Authority.

I - Is is important ?

? P - Does it have any potential for improvement ?

? A - Do you have authority to improve this KPI?

Simply by asking these questions, you’d be able to determine if a particular metric is eligible to be a KPI for your business.

Once you have completed the groundwork of defining the suitable KPI’s, ensure that you track them in a timely fashion. And most importantly communicate and share the KPI data with all staff members.

In recent research on Mushroom Management (a non-transparent management style where communication channels between managers and employees do not work properly and employees are kept in the dark on company performance), it was revealed that;

Over 80% of employees want their managers to share more information about how well the business is doing

One in four employees have, or know someone who has left a business due to a lack of transparency on business direction and performance

Over 50% of employees say that more information and data about the company being shared had a significant positive impact on their productivity and performance

These findings speak for themselves! When team members don’t have access to see how good or bad a business is performing towards achieving its goals (ie: business KPIs), how can you expect them to be focused and motivated in executing the work towards achieving those goals? It is imperative to keep in mind that communication is the key, data collected is otherwise useless. This is especially true for KPIs.

Having said that, do not just dump complex data on the employees for the sake of providing them with access to KPIs. Make sure that your KPIs are easy to understand and enjoyable to read.

Unless your entire staff is a bunch of data analysts, no one is going to enjoy staring at a spreadsheet trying to figure out what the numbers represent. So make sure that your KPIs are in a format that is easy-to-grasp by all team members, not only the data analysts. Having virtual dashboards with easy to understand graphs, charts and images, accessible through a centralised intranet helps your organisation with humanising KPI communication plus making them actionable.

When you have chosen meaningful KPIs for measuring your business performance and implemented processes and systems to measure and communicate them with all employees, introduce a reward and recognition programme. Such practice will not only encourage employees to voice out their feedback, but also drive their actions on KPI data. When doing so, ensure that what you are rewarding ties directly to the KPIs you have set.

An example: A KPI that measures how many new customers your business has acquired each month. Depending on the situation, a well-arranged performance reward programme can reward employees based on the number of new customers they have brought to the company.

All of this means that a business requires some investment to build the environment where data can be turned into actionable knowledge. And that means an organization must invest time and efforts to turn KPI data into meaningful and actionable insights.

Created : December 15th, 2016.