Track Your Business to Success -KPIs
What gets measured gets managed. What does this quote mean to you? Have you ever worked tirelessly on a campaign without realising the desired result? And when it’s over, you’re still unsure regarding its impact on your profit margin? Or whether it was it worth your investment in terms of the time-frustration-stress input?
To expand on the above quote, what gets managed has a higher probability of success and of you, as the business owner, taking corrective action to avoid negative consequences. And this brings us to the point of this article which is to make you more aware of the metrics that matter in your business, so you can work towards measuring them and then act accordingly.
Let’s start by examining what Key Performance Indicators (KPIs) are and why they’re critical to your business mission. After all, if you have no idea where your business stands, how can you implement the adjustments that will get your business humming and subsequently celebrate the wins.
What is a KPI?
Using KPIs is an established business practice. If you manage a team, there’s a good chance you’ve heard of key performance indicators. Regardless of whether you’re familiar with them or you’re still asking, “What is a KPI exactly?”, let’s take a little refresher course before we get to some examples of the most important metrics.
In short, a KPI is defined as an analytical measurement that helps you understand how your business is performing. A good KPI should act as a compass, helping you and your team ascertain whether you’re taking the right path towards your strategic goals.
To be effective, a KPI must be:
- Well-defined and quantifiable,
- Communicated throughout your business,
- Crucial to achieving your goal,
- Applicable and link back to your holistic business strategy.
The trouble is, there are thousands of KPIs from which to choose. Selecting the wrong one, means you are measuring something that doesn’t align with your goals. How, then, should you go about picking the right KPIs for your organization?
The best way to accomplish this is by researching and understanding some of the most important KPIs. This way, you’ll have a more comprehensive picture regarding which KPIs are specific to your industry and correlate with your strategy.
What constitutes a workable KPI?
The SMART measure sums up the qualities of a workable KPI.
- Specific – It clearly and precisely states what will be measured.
- Measurable – It is numerical and can be graphed.
- Actionable – It delivers results that can be easily interpreted, so you are clear on what actions to take to affect the measure.
- Repeatable – It enables you to consistently gather information over time.
- Timely – It allows for frequent and regular measurement taking.
Ideally, you should not have more than one to two measures per strategic objective. Also, your choice should represent the two types of measures, namely “outcome measures” and “driver measures.” How can you differentiate between the two?
Well, outcome measures answer the question: “How would I know?” They are the measures tied to your financial and customer objectives.
Driver measures describe: “What we need to do well.” These measures relate to your product, service, process, learning, and growth perspectives.
The KPIs you select depend on the critical success factors for your business.
What benefits do KPIs offer?
Key performance indicators offer many advantages over other ways of measuring business performance. For example:
- They simplify complex data into easily understood metrics.
- They help decision makers assess the current situation – and follow up with the appropriate action.
- They enhance employee focus. A KPI provides an obvious target that can be easily understood and plausibly achieved.
- They can help reduce conflict. It's hard to argue with solid numbers compared with opinions or theories.
- They clarify job descriptions. Employees given specific KPIs are less likely to be confused about their roles.
Getting insight into your business is one thing. Acting on this insight is quite another. KPIs allow you to accomplish both. And because they’re measurable and quantifiable, they make it easy to produce the metrics that demonstrate how well (or poorly) your business is doing.
Your KPI improvement plan?
That said, KPIs that do not support you in making effective decisions are meaningless numbers which brings us back to the value of choosing the right KPIs for your business. In this case, reminding yourself why you are in business, what you’re looking to achieve, and who your target customers are as well as reviewing your annual business plan can help you identify the 12-month goals that align with your business strategy.
Start by establishing three to five key drivers that are fundamental to your business's success. Follow up by setting sensible targets for improving those KPIs. It can be helpful to break the KPIs into bite-sized chunks, i.e., 90-day goals and 30-day goals and then assign these goals to key personnel.
Continue by streamlining the business processes that will improve your KPIs and increase efficiency and productivity. It can also pay to invest in a cloud-based dashboard which is designed to provide an easy-to-interpret snapshot of your business performance. Finally, have someone independent hold you accountable for your actions.
This KPI improvement process allows you to gain a better understanding of your core purpose while increasing your ability to make effective strategic decisions.
Clarity breeds confidence. And SMART Business Solutions is with you every step of the way. We can help you identify your pain points and opportunities, enabling you to unlock your full business potential. Contact us today to discover how we can offer your business the support and accountability required to achieve greatness.
Want to grow your business & improve cash ﬂow?
You need SMART solutions for YOUR business, not just annual tax compliance! Get the SMART team working with you. Call SMART Business Solutions today on 03 5911 7000 or email@example.com.