KPIs are important, but which ones?

The renowned management consultant, Peter Drucker, is attributed with saying, “that which gets measured gets managed,” and conventional thinking has changed that saying to “that which gets measured gets improved.”

While there is truth in this thinking, there are also pitfalls.

What are you measuring and why? Are they the right things to measure? Will measuring them improve your company, increase your profitability, yield customer satisfaction, etc.?

This is why it is important for companies to choose which KPIs (Key Performance Indicators) they track, measure, and hold people accountable for those metrics.

There is a difference between financial performance metrics and KPIs.

I often see companies state financial performance metrics as their KPIs.  It is true, some financial performance metrics can and should be KPIs, but there are other KPIs not found in a P&L statement that should be measured.

Financial performance metrics are the scoreboard after the game and the results of the work being done in the company.  The right KPIs help influence the scoreboard.

So what are you measuring?

Let’s start with what you are measuring today and, even more importantly, why are you measuring it?  

List them out.

Now, ask yourself for each of the measurements, “does measuring this metric help me improve or change the trajectory of my business?”

Another great question is, “do the people in my company know what they need to do to positively influence the metric?”

The answers may surprise you.  There are likely metrics being measured (outside of financial performance metrics) that, while interesting to see on a weekly, monthly, yearly basis, aren’t actually helping your team move the company forward in a positive direction.

You may also be surprised to find that you likely have metrics that the people in your company would not know how to affect positively or negatively, yet continue to get reported and even hold those same people accountable for those metrics.

Once again, outside of financial performance metrics, which are a requirement for any company, if the metrics are not serving to improve the company, you should look at these metrics critically and decide if they are necessary to track and use as a KPI for your teams.

There is also a difference in what you track and what you share with your teams. Those “scoreboard” metrics that help you take the pulse of the company may still be important for you to see; however, as mentioned, if the team does not know how to influence those metrics, they are best not used as a measurement tool that the team looks at on a continual basis.

But, shouldn’t we just track all metrics?

Honestly, I have seen this in practice. So many metrics that the team can’t determine which ones should be getting attention and those that won’t move the needle for the organization.

This leads to a lack of focus on what really matters in your company.

So, which KPIs should we be tracking?

My suggestion is to look at two main categories for KPIs in your company.

The first are KPIs that are early warning systems for your company. What metrics will tell you that attention is needed in key areas of the business so that the wheels come off the bus? (e.g. Customer Churn Rates, Defect Rate, Inventory Turnover).

The second are KPIs that will help you grow your business (e.g. % of Revenue Generated from new Products / Solutions, Time to Market).

What is important is that your KPIs align with your strategy, that those KPIs are understood by the people in your company, and that they know how to affect positive change to those KPIs.  For example, “Revenue” is a typical KPI, but does your team know how to positively affect revenue? Instead of telling the team, “go sell more,” use the key factors that generate revenue in your company (e.g. Number of New Customer Accounts, Average Sales Per Customer, etc.).

Need Help Reviewing Your Existing KPIs and Help In Establishing a Set of KPIs that your employees can use to propel your organization forward?

We can help.  At Williams Apex Advisors, we can offer an objective point of view, help you determine what is important to measure, ensuring that the KPIs you use are aligned with your strategy, can be accurately measured, and that your employees know how to affect positive change moving your company forward!  Check our Strategic Consulting Service here, where we can customize a plan for your company.