Why You Need Key Performance Indicators - business kpi

In this post, you can ref free useful materials about business kpi and other materials for business kpi such as kpi tips, kpi mistakes, kpi examples, kpi templates, kpi dashboard, kpi form, how to create kpi/performance metrics

If you need free ebook:

           

• List of free 2436 KPIs

• Top 28 performance appraisal forms

• 11 performance appraisal methods

• 1125 performance review phrases

please visit: kpi123.com

KPI guides

In my travels as a business mentor and coach, all too often I come across great businesses of all sizes doing what they do really well but barely being able to keep control of their team.  More often than not, they do not use Key Performance Indicators (KPI’s).

What is a KPI?

Wikipedia states that “KPIs are commonly used by an organization to evaluate its success or the success of a particular activity in which it is engaged. Sometimes success is defined in terms of making progress toward strategic goals, but often, success is simply the repeated achievement of some level of operational goal.”
The key word in the above statement is evaluate, if you do not evaluate your staff’s performance then how on earth do you know if they are doing a great job or a terrible one …… that’s right, your don’t!  One of the biggest threats to any business is it’s staff performance, the only way you can keep them focused on what they should be doing is to keep them accountable.
As a business owner or manager, you can know exactly what level any of your staff are working at, by putting KPI’s in place.  Give them goals to work towards, with these in place it will be easier for your staff to stay focused, when they have reached their goals, they will know they have done a good job, if they fail to meet their goals then the business owner / manager can use this performance level to identify areas that require training & development.
Keeping them focused on their jobs, helps to clarify their job roles and their responsibilities, this in turn minimises stress and confusion throughout the team helping them to maintain a happier working environment and be more efficient.  When it comes to their staff appraisals, the discussion can be help between the business owner and the staff member using factual information based around the KPI’s, making it easier for both parties to agree on the way forward especially around subjects like training & development, promotion prospects and wage increases.

Practical Example of KPI Usage

A large company has several departments each with their own team leader, these team leaders have to report to their departmental managers who in turn report to the general manager.  Each week the team leaders have meetings with their staff and they in turn report to their managers.  Every two weeks their managers report to the general manager so that they in turn can report to the board.

No KPI’s in Place

• Teams have their meetings, with no set agenda, the team leaders have know idea what they should be reporting to their team managers so their meeting is not structured, their is the usual complaining about the same issues week in week out and there is a general attitude of “why are we bothering this is a waste of time!”
• The team leaders, having had a non productive meeting have a meeting with their managers with little to report except for the usual complaints from their team.
• The team managers then report their usual list of complaints to the general manager (believing they will fall on deaf ears because nothing has been done in the past).
• The general manager then has an awkward meeting with the board with nothing other than complaints to report.

KPI’s in Place

• Team leaders organise their meetings with set agendas, according to their own KPI’s, asking their teams to report back about a range of specific areas within their job roles.  Each member of the team gets a set amount of time within the meeting to report their specifics, any issues then get discussed and action plans decided on how to overcome the issues and thus improve performance and the KPI measure.
• Team managers organise their meetings with set agendas, according to their own KPI’s, they allow each of their team leaders to report on specifics areas relating to their KPi’s, any issues raised as a result of this reporting is then discussed and action plans put in place to address them.
• The general manager organises their meeting with a set agenda, according to their own KPI’s, they then allow each of the team managers to report on specific areas relating to their KPI’s ensuring that issues and action plans are also reported.
• The general manager now has all the information the board need to understand what is going on with the business, keeping up to speed of performances in each department as well as getting an understanding of the issues facing any part of the business at any time including potential action plans to address these.

Which company do you think will last the longest and perform the strongest?

Summary

• Having measures creates natural boundaries for each job role.
• Creating boundaries, creates clarification.
• Having clarification about your job role gives you confidence.
• Confidence leads to better output and efficiencies and less stress.
• Less stress and better efficiencies makes for a healthier business.

What is a Key Performance Indicator (KPI)
How to Develop Key Performance Indicators (KPIs)

What's a use case where a company uses both OKR and KPI?-business kpi

In this post, you can ref free useful materials about business kpi and other materials for business kpi such as kpi tips, kpi mistakes, kpi examples, kpi templates, kpi dashboard, kpi form, how to create kpi/performance metrics

If you need free ebook:

           

• List of free 2436 KPIs

• Top 28 performance appraisal forms

• 11 performance appraisal methods

• 1125 performance review phrases

please visit: kpi123.com

KPI guides

There are lots of systems that tend to fit into a grandfather umbrella of "management by objective".  They are all various flavors of making sure to understand how to metric success or failure against an "aspiration".

I use the word aspiration as a generic term to cover what can otherwise be variously called goals, objectives, milestones, strategies, tactics or any number of other words that mean something people want done.

Because these systems have a similar purpose, they tend to have grey area overlaps. The differences between aren't about the core idea of an aspiration and a measurement, the differences are about the nuance of how they are applied.

In the case of the two systems you asked about, here's how I view them:

KPIs are Dashboards on Consistent Areas of Production

KPIs are generally talked about in relation to a more static set of needs than OKRs. They tend to be a set of measurements on an operational area of a business that seeks to produce a similar result consistently over time. As such, they are often rolled up into dashboard views that hang around and turn attractive shades of red, yellow and green.

Their use is to highlight danger areas in a consistent process in a way that encourages analysis and reaction to the negative metrics early in the trends. The biggest example of this is their use in a "balanced score card" model.

Because, in the end, this is just a way to think about measuring progress towards an aspiration you can apply KPIs to more fluid things, like a new company initiative to change XXX. But still, there's a sense that a mission is determined at the outset, KPIs are identified, a dashboard is set up.

So the activity loop on a KPIs runs something like this:

1. People do things in the organization
2. Results happen that affect KPIs
3. KPIs are monitored and noted when they turn bad
4. Actions are determined to correct the situation

Sometime long before this loop starts executing over and over again, an aspiration was defined and KPIs were determined. Now you just watch them.

You often see people asking questions like "what are good KPIs for sales follow up" or "What best practice KPIs exist for warehouse logistics". The perception is that it's about monitoring something that should be consistently productive. The emphasis is on the measurement while the aspiration is kind of assumed to be understood.

OKRs are Alignment and Accountability of Innovation Efforts

OKRs seem to be more about the importance of good qualitative aspirations being set, then re-evaluated and set again. The measurements are critical too, of course, but they derive from the objectives in a more fluid fashion than KPIs. The objective in an OKR is meant to be set, killed and reset. The key results, therefore, will be re-imagined as the objective changes.

So the activity loop for OKRs is more like this:

1. Objectives are determined
2. Key results are defined and committed to
3. Work happens to hit the numbers
4. Progress is evaluated

The objective definition is constantly being re-thought in the loop itself, as are the key results. As such, they work better for empirical work - i.e. work where you do some things, see what you have learned and then make new plans that could pivot the whole effort.

How Organizations Would Use Both

Say you are Google and you have two different areas that you want make sure have strong direction and are accountable to performance: Data center operations and the new and secret Android team.

Data center operations might be a good place to define some KPIs around energy usage per square foot, hardware failure, data throughput, etc.. They have a set of parameters that have to be good all of the time, year in and year out. A scorecard on how they are doing might be good to have.

The Android team isn't even sure what they are building yet. What do you measure and green/red light? They are designing something new, and while they have a big picture idea of the objectives, all of the objectives a step down from that may change over time.

You could try to come up with KPIs  that are more generic to the project specifics (as people have attempted in the past) like lines of code per developer per week, but programmer productivity defies measurement that way. The guy who writes 3 lines of code that do the same thing faster than the other guy who wrote 200 lines of code to do it is a keeper not a problem, even if he had to work on it for the same amount of time as the 200 line person.

So basically, what you do is have people set new objectives and new key results on an ongoing basis until you have something cool.

Where It Gets Messy

If the same employees tend to be responsible for maintaining KPI health and innovating and moving things forward, combining the approaches gets difficult. It becomes difficult to define extraordinary initiatives as OKRs with a real sense of how much time and effort can reliably put towards them if any decline in the KPIs take priority.

That all leads to the common frustration of slow or absent progress towards changes in the state of the art. It's common to plan OKR-like initiatives too optimistically and then have them fall prey to KPI priorities inside of consistent operational areas. That conflict isn't so much inherent to the systems of KPIs or OKRs, but more to the general nature of balancing priorities and resources.

What is a Key Performance Indicator (KPI)
How to Develop Key Performance Indicators (KPIs)

The art of setting KPIs-business kpi

In this post, you can ref free useful materials about business kpi and other materials for business kpi such as kpi tips, kpi mistakes, kpi examples, kpi templates, kpi dashboard, kpi form, how to create kpi/performance metrics

If you need free ebook:

           

• List of free 2436 KPIs

• Top 28 performance appraisal forms

• 11 performance appraisal methods

• 1125 performance review phrases

please visit: kpi123.com

KPI guides

The trouble is many companies don't know what to measure. The result: bad management, mixed messages, confusion and employees focusing on the wrong thing.

KPIs need to be handled with care. Some companies use many KPIs, others have a handful. But they all need to use the right ones.

Kevin Dwyer, founder of change management consultancy firm Change Factory tells of one big financial services company that had three conflicting KPIs: containing bad debts, days that people hadn't paid and costs.

"If they pushed hard on costs, it pushed bad debts up,'' Dwyer says. "To keep bad debts down, you might have to spend more and put another 100 people on at the call centre. By pushing down on costs, bad debts might go up but to keep bad debt down, you might have to spend more." 

KPIs cover many areas and there are different measures for different roles. Typical KPIs include cost of sales, the mix of products sold, sales against target, sales conversion rates, delivery on time, employee turnover, number of new ideas generated, how many ideas become profitable, rate of conversion of web traffic, customer acquisition cost or inventory turnover, lost time due to injuries, error rate and customer complaints.

So many KPIs, but all held together by one principle: they are shaped by the company's strategy and operations. A retailer will have different KPIs to a warehousing company.

The KPI is the indicator of where the company is headed. But it is also the one area that many companies screw up because they are not thinking about how a KPI is helping the company meet its targets.

Goals are not KPIs

Dwyer says another mistake of managers is to confuse KPIs with goals. The two are not the same.

"If a company wants to get $200 million of sales, they assume it's a KPI – it's not,'' Dwyer says.

"The KPIs there should be about the sales process. They might be about how many new customers, how many customers visited gave a repeat visitation, how many of those visits ended up in a presentation and how many of those were closed as deals."

"The KPI has to measure a process. You want the KPI linked to the corporate goal but it is not the goal itself."

He says some companies make the mistake of having KPIs that have nothing to do with corporate goals. There are sales teams, for example, that have KPIs around whether they completed reports on time - something that will not sell a thing. And every industry has a mix of formal KPIs that are written down (often as part of a job description) and informal KPIs that are not written down. Like the incongruent KPIs pulling in different directions, they can leave employees confused and disenchanted.

"You might have a call centre with a formal KPI of ensuring customers deliver on their promises to pay on time. The employee might spend more time on the phone helping the customer do that, offering deals and different ways of paying, so the average time on the phone goes up. This might not be the published KPI but in call centre land, the time you spend on the phone is something people jump on. So the formal KPI is promises kept, the informal KPI is minutes per call. Guess which one affects behavior?"

Queensland based performance measurement specialist Stacy Barr, who helps companies, not-for-profits and government agencies develop KPIs, says KPIs are not about measuring people.

"KPIs are there to measure the performance of the organisation and KPIs are tools that people can use so that they can work not just in the business but also on the business, in other words improve the way the business works and improve its performance. I help companies create KPIs that give them feedback really objectively and quickly about how various aspects of the organisation are performing. Anything companies decide are strategically important usually ends up as the goals or objectives in the business plan and the KPIs track those."

Setting targets attached to KPIs

Some KPIs can stretch employees, and Barr says stretch KPIs need to be handled with care.

"How high a target it is has got everything to do with the comfort of the company, how well it understands how they are currently performing and what sort of resources they are willing to throw at improving performance,'' she says.

"You don't achieve a target by working hard. You achieve it by working differently and working differently means redesigning business processes. It should be aspirational but not a target that people become cynical about."

"The idea is that the target should stretch you away from where you are and often you might miss the target but its power has pulled you away so far from where you were."

John Hogg, managing director STL Warehousing which provides warehousing services says all stretch goals need to be economically viable.

"You may set your inventory accuracy at 99.5% and that's your target but your goal is 100%,'' Hogg says. "If your 100% is going to cost you more than 0.5% in controls because you need three extra people and another million dollars of machinery, you accept that 99.5% is economically viable and 100% is economically unviable."

Working with staff to develop KPIs

Grant Hyman, founder and director of sales solutions specialists Sales Central, says it is absolutely critical for managers to develop the KPIs in consultation with the employee.

"You talk about two things. The first is what the person is employed for, the second is what is going to give them satisfaction that will ensure they stay loyal and motivated."

"It needs to have direct relevance to the company's main goals and the employees motivations."

He says the KPIs need constant monitoring.

"It has to be done that way because it has relevance,'' he says.

"If it's only monitored quarterly, then it becomes like an exam. It becomes an extra to the business and that's where the problems arise because they can be extraneous to the employee doing the job. They then become onerous things that we are being checked on."

Jessica Schebesta, a director of Frank Team which helps young entrepreneurs set up businesses, says it is critical to work with staff to develop stretch goals.

"If they feel it is too far out of reach and ridiculous, they are not going to try. But if we have a strategy in place and they know how strive for it, they will push,'' Schebesta says.

She says monitoring KPIs is easy these days because much of it is at the fingertips. With manufacturing, it can be done by the machinery. With services it can be done with online tools that can be purchased or that are free.

KPIs will vary by the business and the role. A bad workman will always blame the tools. But the role of managers is to pick the right ones.

KPIs for a sales person

For a sales team, the goal might be to increase sales to $200 million a year.

To do that, the KPIs need to be built around the process for generating profitable sales.

Sales KPIs can include:

• Customer retention
• Cost per order
• Cost per customer
• Mix of products
• Number of leads
• Lead conversion rates of suspects to prospects
• Presentations for prospects
• How many proposals get signed off
• Relative performance of different marketing activities (eg. advertising versus online marketing)
• Conversion rate of marketing and sales campaigns
• How many new customers
• Sales turnover for new customers
• Profit per customer
• Dollars per sale
• How many presentations
• Average sales per customer per year

KPIs for an operations team member

KPIs for operations depend completely on the business and where the operations people are. Experts say there are no off the shelf KPIs. These need to be worked out by the managers, preferably in consultation with employees.

But broadly speaking some operations KPIs used at various companies have included:

• Time spent from order to delivery
• On-time delivery to request
• Error rate
• Stock on shelf
• Customers coming back with problems
• Number of complaints
• Customer feedback
• How many reworks
• Cycle times
• Average time to complete and order
• Lost time due to injuries
• OSHA-reportable incidents per year.

What is a Key Performance Indicator (KPI)
How to Develop Key Performance Indicators (KPIs)