As a business, how do you prove you have achieved success?
Depending on who you are within a business, there may be different answers to this question, as different roles will have different goals. The key to being able to answer this is to define what success means – and to do this you need clear, well-defined, and measurable targets known as Key Performance Indicators (KPIs).
What are Key Performance Indicators (KPIs)?
Key Performance Indicators are measurable values that indicate how effectively a person, department, or organisation is achieving their objectives. KPIs are used to monitor progress, assess performance, and make data-driven decisions.
KPIs may be different for each department within the business, enabling a focus on what they can impact and improve, rather than looking at data that isn’t directly relevant.
They are typically defined based on specific objectives, which can vary depending on the nature of the business. For example, for sales personnel common KPIs might be revenue growth, and customer acquisition figures. For customer service teams, their KPIs might include response times, customer satisfaction scores, or resolution rates.
Why KPIs are so important
KPIs can promote a culture and mindset of continuous improvement and reflection, involving many different teams within a business, and driving focus towards the overall business objectives. Below are just a handful of reasons why it is so important for businesses to use and measure KPIs.
- Measuring performance in a quantifiable way
- Understanding how performance aligns with expectations
- Improving collaboration across different teams or departments
- Enabling better decision making
- Driving continuous improvement
- Providing transparency and accountability
Robust KPIs allow business teams to focus on what matters the most. They help align everyone’s efforts towards common goals, leading to improved efficiency and success business-wide.
KPIs require regular monitoring and reporting to enable crucial, timely action to be taken where required. They can also be used to see the impact of changes made within the business to see how successful these are and if they are impacting things as expected, allowing better business decisions to be made.
How to select the right KPIs for your business
Businesses have many moving parts, which can make it difficult to know what to measure as part of your KPIs. Selecting the right KPIs for your business requires careful consideration and alignment with your overall goals.
When selecting your KPIs, you should consider the following:
- Identify your overall business objectives
- Make sure the outcomes are measurable
- Ensure they are aligned with strategic priorities
- Take industry benchmarks into account
- Keep things actionable
- Use the SMART system (specific, measurable, attainable, relevant, and time-bound)
- Keep the number of KPIs limited
- Continuously review and refine your KPIs
Selecting the right KPIs should be dynamic, including ongoing evaluation and adaptation. We recommend reviewing them regularly, such as quarterly or annually, to ensure the insights they provide are as fresh and relevant as possible.
Can you have too much information?
Having hundreds of different measures to focus on isn't helpful, as the attention will be split, and their effectiveness diluted. A manageable set of KPIs is crucial, these may change over time, but the number of different measures should not keep increasing.
It is therefore important to define the end goal and look at which KPIs will help you get there, and which teams are responsible for each. This will provide a roadmap to achieving the business goals and, ultimately, success.
Tools and systems to track and measure KPIs
When your KPIs have been selected, it’s important to make sure you can track and measure them effectively. Lots of tools and systems that can be deployed, depending on the goals and requirements of the business. Here are some examples:
- Spreadsheets: Such as Microsoft Excel, Google Sheets
- Business Intelligence (BI) tools: Such as Power BI
- Accounting software: Such as Xero
- Performance Management Software
- Customer Relationship Management (CRM) systems
- Data Analytics platforms
- Enterprise Resource Planning (ERP) Systems
When selecting your tools and systems, you should always consider things like scalability, ease of use, integration capabilities, reporting functionalities, and (of course) cost. You should continuously evaluate the different options to ensure you only use the right tools for your business needs.
Potential challenges and issues when tracking KPIs
While important for a business to grow and succeed, there are several potential challenges when implementing KPIs. The good news is these can all be mitigated with a sensible approach and proper planning.
- Selecting irrelevant KPIs can lead to misguided decisions and ineffective actions.
- Lack of clarity and communication can result in misinterpretation of the KPIs and what they really mean.
- Inadequate or poor-quality data can undermine the effectiveness of KPI tracking and measurement.
- Unrealistic or unattainable targets can demotivate employees and create a negative perception of KPIs.
- Tracking an excessive number of KPIs can lead to information overload and dilute focus.
- Failing to review and adapt KPIs can result in outdated metrics that do not reflect the current needs of the business.
If you require advice in determining the right strategic objectives and KPIs for your business, and on the best ways to report on them, we recommend you contact our Genus team, who will be more than happy to help.