Company Specific KPIs
Why do you need company specific KPIs? When asking this question, take a step back and answer this alternative question first: “Do I want to be the same as everyone else or do I want to be better, stronger and faster?” If the answer is the former, then take a trip to one of the numerous KPI libraries dotted around the net and pick the KPIs that make you feel comfortable. If, however, you want to be better, stronger and faster, then roll up your sleeves and put some effort into defining exactly what you want to achieve with your business!
Why company specific KPIs?
Key Performance Indicators come in two varieties. The first are the KPIs that are common to all businesses. They include things like Revenue, Profit, Customer Satisfaction, Time to Market. Bernard Marr, in his book “Key Performance Indicators – The 75 measures every manager needs to know” has outlined each of these. Every company should be using a selection of KPIs from this very thorough book.
The second, and most important are company specific KPIs. They should be related to the companies strategic objectives. The things that the company is doing to make itself different. The aspects a product or service that will differentiate itself from the competition, and therefore succeed. The message is clear, do not start with KPIs! Start by looking at exactly what you want to achieve. Then develop some clearly defined strategic objectives. Once you have a set of objectives, the measure will follow. If you are looking for a process to develop your KPIs, then take a look at the eBook How to Develop Meaningful KPIs. It provides a step by step guide to help you produce the very best KPIs for a set of strategic objectives.
It’s all too easy to look broadly at your competitors’ activity and try to set targets that respond to their successes. However, this will always set you up to fail and keep you on the back foot. To achieve sustainable competitive advantage, you need to focus on your own corporate direction. To set truly meaningful KPIs, turn your attention to your own organisation and its strategy. Your business leadership team will have invested energy and expertise to define it, and it’s your company’s unique roadmap to success. Every KPI should be related to a goal or strategic objective. Your goals and objectives are specific to your business so your KPIs should be specific to your goals and strategic objectives.
Keeping an eye on the industry
Naturally, you will always be scanning the industry and competitors to remain informed and respond accordingly. But this information should be fed into early strategic planning, not into the development of KPIs. With KPIs, your focus is on measuring progress towards your own strategic objectives. Get this right, and you’ll see growth and financial returns. Get it wrong, and you’ll always be one step behind. Your competitive position will slowly erode as you constantly try to play ‘catch up’ in the market.
Are KPIs operational?
The short answer is no. KPIs are related to strategy. However, strategy is ultimately related to operations! This is a grey area. If you stick to the two golden rules below, you should remain on track.
Meaningful KPIs: Two Golden Rules
Firstly, a KPI forms an intrinsic link to a strategic goal or objective. This is why it is ‘key’. If it isn’t linked to a strategic objective, it is probably a simple metric or indicator, but it is not a ‘Key’ Performance Indicator. Metrics and indicators may be useful operationally, but strategically we are working at a higher level and looking at the future health of a company. Consider the following definition:
A Key Performance Indicator is something that can be counted and compared; it provides evidence of the degree to which a strategic objective is being attained over a specified time.
Secondly, a KPI is not used to measure an activity or percentage achievement of a project. Measuring how much work has been done on an activity or project is important, but it will not tell us whether or not the project has contributed to strategic change. For example, just because we have spent £5,000 and 3 weeks on an e-mail marketing campaign does not mean it has been successful. Success is dependent on the outcome, not the activity.
Other features of KPIs include:
1. Counted: counted means a quantity can be assigned – providing evidence that measures progress towards the goal or objective over time. This must be a counted value of the outcome – not a percentage achievement of an activity. For example, Customer Satisfaction can be counted as a percentage. Number of Cars Delivered on Time can be counted as a number, Net Profit can be counted as a currency.
2. Compared: It is useful to have a percentage, number or currency but to be a KPI it has to be compared to something else to be meaningful. For example, with Customer Satisfaction a typical company target might be 95%. Therefore, our goal comparator would be 95%. We might then add a Red Flag comparator of 85%. We now have a KPI system in place that clearly tells us we are achieving our goal above 95%, failing below 85%, and that attention is required between 85% and 95%.
3. Evidenced: You can – and must – evidence a KPI. Your stakeholders must be able to assess your objectivity. KPIs cannot appear out of thin air. The KPI must have relevance to the objective or goal and it must be real.
4. Time-bound: You should be able to define a specific time period over which you would expect to see progress in a KPI. Some, like Customer Satisfaction, will see a long-period attachment. Others like Revenue Growth might see a shorter-term time attachment. Generally, the shorter the time period the greater the sense of urgency to change.
Common KPI mistakes
There are two mistakes that many businesses make when setting KPIs which you must avoid:
1. Focusing on the KPIs themselves before the strategy and business objectives are in place. (To quote a well-known phrase, putting the cart before the horse!)
2. Even worse, launching straight into ill-defined, costly projects before your KPIs are in place to measure them; projects which may fail as a result of poor strategic planning which set targets before considering strategic objectives.
What happens when these KPI mistakes are made?
When businesses chase incorrect KPIs, they immediately risk falling short of their strategic goals, wasting money on the wrong projects and mismanaging precious resources. Over time, your business will steer off course, fail to grow and lose competitive advantage.
How to master your company specific KPIs
If you are serious about the long-term future of your business, you must get serious about KPI development. There are different ways to approach this, but all incorporate the following stages:
Use a system
Use a clear system that forces your business to fully work through the necessary stages of KPI development. Many larger organisations will use a formalised system such as the Balanced Scorecard approach. Other organisations might try the methodology popularised by Stacey Barr the performance measure specialist, which focuses on the essential balance of people and systems. The system you use can be fairly ‘light touch’ and hybrid. Regardless of your approach, what counts is that you have a system in the first place.
Put strategy first
Get the order of things right. Focus on developing a sound business strategy first. Then, define the underpinning business objectives before you move on to measurement through KPIs. Link every KPI to defined strategic objectives or goals. Remember, key performance indicators are not general metrics
Use KPI software
Make it easier for yourself by implementing a software package that automates the process of defining objectives, KPIs and thresholds and collecting KPI data. A good package will allow you to quickly produce rich and intuitive reports that aid business decision-making. There are many packages available in the market, we recommend you take a look at QuickScore. If you are part of a very large organisation, then you probably have this covered already as a module in a corporate management system. However, if you are part of a small to medium sized business, then you will almost certainly be using spreadsheets, documents and presentations. For a very small outlay you could and should, be using dedicated KPI Software.
Engage your people
Once you’ve perfected your KPIs, think about your people. You must engage your employees in a dialogue which creates excitement and ownership. The business must feel mobilised and supported in delivering its new objectives – with the right tools, systems, processes and resources in place to do this.
Essentially, for your KPIs to ever become more than just numbers on a page, they must be owned by your employees. And this means creating a culture that constantly strives to achieve, which rewards success and which treats your employees as the absolute key to your performance
Running a business is a complex business. It isn’t possible to keep track of everything. As a business leader, you must focus on what really matters to ensure your business succeeds – and this means measuring progress towards your strategic objectives and goals with accurate and meaningful company specific KPIs.