Key Performance Indicators – and their role in achieving business goals
Establishing clear Key Performance Indicators throughout your business is critical to establishing an effective business plan that will drive the results you want – especially as your business grows and more people and business processes are developed.
Key Performance Indicators (KPIs) are your checks and balances to ensure your processes are moving smoothly and that progress is being made in every area of your business toward strategic business goals. Establishing and measuring against KPIs is every bit as important as having a business plan.
Here’s how to ensure you have strong and relevant KPIs in place
Your overall long term business goals establish your strategic business direction. All of your managers and team members need to understand that vision, and be at all times working toward it.
Given that audacious goals are not achieved in a short period of time, almost always, sub goals need to be established – and the path toward each sub goal achievement (business strategy) needs to be mapped (and sometimes remapped due to unforeseen circumstances). Every single person in your organisation contributes to staying on the path toward the goals in their own way.
Establishing KPIs is almost like lighting the path you need them to stay on. Establishing Key Performance Indicators is simply a way of ensuring that each person is clear on what they need to achieve – and measuring them against that achievement. It’s also a way of ensuring that performance is both measured in a rational, non-subjective manner – and rewarded appropriately. A good example of this is where performance management systems allow someone to shine who may not be always putting their hand up for recognition, and pulling in line those who may have a habit of talking about achievement but not actually delivering it.
Every step of your delivery output to your customers’ needs to have measurements placed against it, and those expectations should be shared company wide, as they become your service expectations.
A good example is measuring the time line between orders coming in and going out. Every step in this process needs to have a KPI established to ensure the overall company expectation is achieved.
If your front-line sales team can confidently tell customers your expected standard for time from order to despatch, they will be confident and professional!
Key Performance Indicators are not only for managing the people in your business
In a manufacturing environment, for example, machines can be allocated KPIs. By measuring machine rejects against overall output, you can measure and forecast gross margin much more accurately in the same way as you can compare one packer with another and forecast efficiency. Once you start thinking about outputs you will also start focusing on the potential.
The job of establishing and reporting on KPIs rests with department managers. In fact, a KPI for Department Managers should be to manage and measure KPIs of their team members.
If you do not have department managers, you may want to consider outsourcing this vital function. With clear goals and strong processes, your staff will invariably become more productive, more engaged and more likely to stay with you for longer.
KPI achievement should be measured either monthly or quarterly, depending on the measure. A sales team will generally be measured monthly (if not weekly), Finance KPIs will be reviewed monthly and quarterly, while a production or procurement team may be measured on quarterly KPIs.
How to establish KPIs
The ideal scenario is that the Performance Measure is developed alongside the employee who is to achieve them. In this you are achieving buy in and agreement that the KPI is reasonable and achievable. Seek as much input from team members as you can on any process changes that might be needed and any potential roadblocks to be aware of. Often Department Managers need to meet to re-assess KPIs to ensure the entire organisation is working as one – cogs moving in synergy in one direction.
Each Key Performance Measure must meet the following:
KPIs must be:
• measurable. KPIs are about actions and tangible achievements.
• specific. You need to be able to measure success against KPIs
• time bound – and reviewed against those time lines. People love to talk about their successes.
Also extremely important is that the KPIs are achievable – that robust processes are in place to allow success to take place.
If you can achieve this, you are sure to hit your end goals. Importantly, be clear with your team that KPI achievement is about meeting tangible goals – these are expectations. KPI measurement, performance reviews and remuneration reviews, while obviously linked together – are not the same.
Ensure you establish the expectation that employees are expected to contribute to and work solidly toward KPIs, and that regular KPI checks are a contributing factor to both personal performance reviews and remuneration reviews – each being a vital component of your overall Human Resource programme designed to enhance overall contribution to the business effort and to create the culture you would like to have for your team!
The value of key performance indicators and how to establish them
Happy planning – it’s worth it!!