KPIs: Helping you reach the horizon

Published: Wednesday 20 May 2020

As the lockdown restrictions are set to be gradually lifted, thousands of business are starting the process of weighing anchor and leaving port for the first time in months. Many business owners will emerge high-level goals or aspirations for the future and many are now reviewing their strategies in light of a ‘new normal’ and as a result will need to adapt or set new goals.

A common stumbling block for businesses in converting these objectives to a reality is they lack a tactical plan for achieving such goals or struggle to communicate them effectively throughout the business in order to make sure they are part of employees’ roles, tasks and decisions. As a result, those high-level goals are unlikely to be achieved.

One solution to this conundrum is the effective use of key performance indicators (KPIs). The Oxford Dictionary definition of KPIs is ‘A quantifiable measure used to evaluate the success of an organisation, employee, etc. in meeting objectives for performance’.KPIs can help make such goals a reality by focusing an individual’s or a teams’ time, resources and energy on tasks and projects that directly contribute to high-level company goals. Furthermore, they can provide staff and management with a measure of progress, a mechanism for performance evaluation, accountability, motivation and help to identify inefficiencies.

KPIs can be set for almost every level within a company but, to be effective, they should cascade down from the high-level goal.

How to identify and set KPIs for my business

Step 1: Identify your high-level goals

Think about where you are now and where you want to be in the future. Express your aspiration using goals that are specific, measurable, attainable, relevant, and time-bound (SMART goals).

Step 2: Decide what KPIs to set

Identify the key factors that are required to achieve your goals and ask yourself, how can I measure each goal and make sure that it is achievable. Your KPIs should then work backwards from each goal establishing key milestones and guideposts along the way.

When it comes to KPIs, less is more. For each goal that you set, you should only set a few KPIs, each of which should be directly correlated with that goal.

Ensure your KPIs are realistic but stretching; unachievable measures lead to frustrated and demotivated employees, too easily achieved and their purpose becomes void. Aim to set between four and ten KPIs per goal. If you focus on too many KPIs, you are going to drown yourself in unnecessary data and dilute your effectiveness, too few and your focus could be too narrow.

Step 3: Share your KPIs with your staff

It is crucial for all employees to be aware of and understand the business goals to ensure they know what they are working towards. Each team and individual may also have their own KPIs. Where implementing individual KPIs, these must be relevant to the overall business goals, allowing employees to understand how their individual input contributes to the goals of the business.

Step 4: Monitor and share progress

An oft repeated mantra states ‘where performance is measured performance improves’. Results should be shared at an interval appropriate to the measure. Success and failure should be identified, relayed back to employees and examined for the lessons that can be learnt. Through this process the focus of the individuals and teams can be brought in line with the business’s goals. This step is critical to ensure your KPIs become a genuine guidepost for employees.

Step 5: Ensure any KPIs are reviewed and updated regularly

Businesses and markets change constantly and, where appropriate, your measures should too. Your high-level goals should be regularly reviewed to ensure they are still ‘SMART.’ If performance exceeds your expectations, you will need to adjust accordingly. If, however, progression is not in line with your initial hopes, you will need to adjust and ensure that the KPIs set are realistic and motivating for those concerned.

A word of warning: obsessive focus on one aspect of the business could lead to decisions which have a negative impact on other areas. For example, a focus on top line turnover could lead to reduced margins as staff offer greater discounts to hit their performance metric. Furthermore, Linking KPIs to incentives (such as a bonus, pay rise or promotion) can lead to detrimental consequences. The true purpose of a KPI is to help people inside the business know where they are in relation to where they want to be; they act like a compass on a sea voyage. Once KPIs are linked to incentives, they can stop being a navigation tool and become a target an individual must hit. When this occurs, the individuals involved can become creative in how they can manipulate the information or their behaviour to ensure they receive the associated incentive.

In conclusion

KPIs are vital for providing staff and management with direction. Running a business without monitoring key metrics is akin to setting sail on a ship without a rudder or a destination. Employ them and make sure your ship and crew know where they are, where they are going and what role everyone must play in ensuring a successful voyage.