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When a company is making money it can seem successful but is it truly measurable?
If a company is struggling to achieve their organizational objectives it can be difficult to determine exactly what aspect of the company is holding it back.
This is where Key Performance Indicators (KPIs) can help when applied effectively.
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They are key objectives that a company can use to measure its accomplishment towards organizational objectives. Think of a KPI as a compass directing the company to take the right path towards achieving its objectives. Key performance indicators are used at all levels of an organization to evaluate their success and can be high-level KPS or low-level KPIs. High-level KPIs evaluate the overall performance of the company, while low-level KPIs will focus on the processes in individual departments from the call center to the warehouse.
How Does a Company Decide What KPIs To Use?
Key performance indicators are only as effective and valuable as the actions that inspire the use of them. The biggest mistake many companies make is to adopt what they deem industry standard KPIs, but not ones that reflect their actual company practices and objectives. The operative word in KPI is ‘Key’ because every KPI needs to relate to a specific company outcome.
KPIs are a form of communication, breaking down and communicating the company objectives to the different levels of the organization in a way they can understand. So, they need to be clear, consist of relevant information and be applicable to the situation at hand. Therefore, when developing a KPI strategy it’s essential to go back to basics and understand the company objectives, the steps needed to achieve those objectives and who is necessary to act on each of those steps. This will then provide a clear picture as to which processes need to be measured using a KPI, and who needs to be in charge of measuring the relevant information.
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To determine if a suggested KPI is relevant and achievable use the SMART Criteria, just 5 simple words that can make the difference between a relevant KPI and wasting your time:
- How Specific is your objective?
- Is it possible to Measure progress towards that objective?
- Is the objective realistically Attainable?
- Is the objective Relevant to the company?
- Is there a Time-Frame for achieving the objective?
Once you have selected the relevant KPIs you need to define the KPI and ensure it is understood by all you need to ask the following questions and document the answers:
- What is the desired result and why does it matter?
- Can the result be influenced?
- How are can you record the progress being made and know when it has been achieved?
- How often will the progress be reviewed?
- Who is responsible for the outcomes?
It is essential to constantly be reviewing your KPIs and the relevance to the company objectives. If you overachieve an objective it is possible you set your KPI too low, or there are other factors at play that need to be considered for future KPIs.
Here are a just a few examples of measurable KPIs:
- Percentage of Product Defects
- Profit
- Cost of Goods Sold
- Customer Satisfaction and retention
- Employee Satisfaction
KPIs require time, effort and the acceptance of your employees to be successful, communication is key and without it, the value of a KPI can be lost. However, successfully adopting KPIs can help keep a company on track to achieving their objectives and keeping employees motivated to work towards those objectives.