A little over a year ago I published a blog on “Measure what you Manage” and given the New Year, I thought that Key Performance Indicators or KPIs are a good topic to consider revisiting for your organization.
At NSS we believe that metrics really matter. If properly and consistently applied, they provide you real measurements in how you are achieving your goals and objectives.
Key indicators are used to measure day-to-day monitoring, goal setting and for achieving efficiencies operationally. Metrics also change depending on your current priorities. The importance here is not how many KPIs you are using, but rather that you use the right metrics for the right tasks.
A KPI is a metric, but not every metric is a KPI! How do you go about defining a KPI? Here are some considerations:
- How many KPIs should you have?
- How often should you measure?
- Who will be accountable for the metrics?
- What benchmark should you use? Make sure you use some industry benchmarks so you can compare yours with the competition.
- Do the metrics reflect your value drivers?
- Can they be worked around it and how will you guard against that?
Many of these metrics are in fact non-financial yet they ultimately affect your financials. KPIs should be aligned with your vision, mission and strategy, including short and long term goals. For example, if your company decides that customer satisfaction is going to be the primary focus of improvement this year, you want to clarify how to measure satisfaction and create the criteria in how to achieve customer satisfaction. Make sure to communicate and train your employees and empower them to realize your expectations. Let me give you a sample of customer satisfaction KPIs:
- Net Promoter Score (NPS) – How many customers like your brand to promote to others?
- Customer Satisfaction Survey – Internal benchmark to use for future baseline and KPI
- Customer Response Time – How long does it take to get back to customers and resolve outstanding issues?
- Customer Acquisition and Retention Rate- measures ability to bring in new customers and of retaining them to generate recurring revenue
- Conversion Rate – How likely is a customer to make additional purchases
- External benchmarking comparing to competition
KPIs in midmarket companies are chosen by the executive team. You decide what you are going to measure and how you want them to perform against your value drivers.
Creating KPIs for key value drivers is not difficult per se, where it gets to be challenging is in actually measuring them consistently. It is also assumed that you base your metrics on valid data. Do you have clean data to work from and the tools to measure accurately so that you can gain accurate results? If not, take necessary steps to clean up your data.
Our experience is that many companies who have KPIs, have in fact too many. This creates a danger that the metrics become meaningless over time and employees will find a way to work around them. This brings me to another important point in setting your KPIs. Make sure your employees fully understand the requirements for the KPIs and in how they successfully can achieve them. Develop an incentive plan and recognize and reward positive outcomes. The employees need to fully understand and be empowered in how to affect a metric positively.
Audit your KPIs periodically to make sure they still make sense and that they are still relevant. If a KPI is not being followed, it should be re-examined for its validity. Discuss the relationship between performance and expectations. Think about your processes and intended actions that lead to improved performances. Do not create KPIs in isolation, they all need to be connected and tied back to your strategic intent. It is far better to have a few KPIs that are right and measure the right value drivers in your organization.
The beauty in KPIs, if consistently measured, is that they are quantifiable and measure how well you are achieving your corporate goals and objectives. They also bring accountability and identify the gaps between actual and targeted performance. The KPIs should represent organizational as well as individual factors that lead to improvement. Generally, companies that actively implement KPIs fare better in the market place against competitors. So metrics do matter.
Do you have a KPI story to share, either successful or not? Do you use them at all? Send me your comments. For another take on KPIs, watch my short Rudi/Tuesday video on performance metrics.
Happy New Year
Rudi Scheiber-Kurtz, CEO of Next Stage Solutions, Inc. |617-449-7728