By Phil Holberton
Every business leader needs to organize a set of KPIs. These KPIs have two purposes:
- To track the progress of a business.
- To motivate the organization to stretch and achieve its maximum performance.
Where Do You Start?
Begin with a few KPIs — five is a good number. Choose KPIs that drive financial results; those KPIs that can measure the performance of the team or company. KPIs need to measure critical activities and the effectiveness of those activities, such as customer retention rate or average order size. Choose those KPIs that you can frequently measure, whether it’s weekly, daily or monthly. Assign responsibility for those KPIs — someone on your team needs to take ownership.
The Technical Aspects
Select KPIs that you can calculate easily. On the surface, everyone should be able to understand them. The top KPIs are those that indicate if individuals are doing their job, and can motivate them to change their behavior and influence the results. Spending is an easy KPI to use — am I under/over budget? Another is sales — can I do something to create improvement in the sales results? Can I make one more sales call or go that extra mile for a customer that results in incremental business?
The Emotional Impact
Psychologically, employees will look at KPIs as their individual report card – how did I do? The trick for the leadership team is to develop and use KPIs to help motivate its employees, not use them as a demotivator. If KPIs are used to discipline an individual, they will fail and not be supported by the rank and file. Use KPIs as a way to measure your progress and as a coaching tool to attain even more effectiveness from the organization.
Identifying the right KPIs is not easy – yet it can be very simple to organize a few KPIs that everyone can wrap their mind around and support. Why is it not easy? Because we have many choices. If you ask ten employees, you may get ten different lists of KPIs. If we step back, I can safely say there could be hundreds of KPIs, each of them having a precise significance yet can be distracting if used only by itself. In this case, the saying “Less is More” prevails.
KPIs, when well established, can be a system that allows for continuous improvement, allowing you to refine your business processes over time, become more efficient and continue to drive overall financial and employee performance. Use KPIs as a means to view the glass as half full, not as half empty and bringing the best out of your employees. Everyone will feel better about themselves.
Ask yourself, am I a leader?
Phil Holberton is the founder of Holberton Group Inc. – Speaking of Leadership, a business advisory firm specializing in strategic, organizational and executive coaching. He also teaches courses in the Project and Program Management and Strategic Analytics programs at Brandeis University Graduate Professional Studies.