- Measuring your business performance is a difficult task, but if not done with care and the right tools.
- Some mistakes businesses commonly make is using KPIs not specific to your business and ones that focus on actions, not results.
- Other mistakes include staff not engaging with the business' desired results and searching for the nonexistent "perfect measure".
A long common issue we come across when we talk to business owners and executives is the difficulty they have determining whether their current performance is on track to achieve their operational and longer term strategic goals and objectives.
Often our conversations with clients start something like “I have to convince my board members, managers or business owners that we will achieve our goals. How do I do this, and how do I give them evidence to show that we are on track to do so?”
Most businesses have some sort of performance measures or KPIs. However, choosing the right measures is fraught with difficulty. Managers often struggle with finding meaningful KPIs, and then struggle again to obtain buy-in from management and staff. The result is KPIs that measure activities and not outcomes, that are vague and meaningless, and that lack ownership from key stakeholders.
Firstly, it is important to understand the true purpose of KPIs. Meaningful KPIs provide objective evidence that shows the extent to which actions and decisions lead to the achievement of organisational goals. At Clear Path, we believe KPIs are about driving continuous improvement, and providing a reference point to gauge the extent to which you are on the right track to meet your objectives. While they are key in driving a high-performing workplace culture, we believe KPIs should not be seen as a tool for judging and punishing staff.
Below, we will go through some of the most common mistakes we see people make when setting KPIs for their business.
Mistake 1 – KPIs not specific to your business
The first mistake relates to how businesses identify the KPIs that they intend to use. Often this is done by compiling a list in a haphazard manner, through brainstorming sessions, searching the net, or by adopting ‘off the shelf’ KPIs that other organisations use. The problem is that these KPIs are generic and not specific to their business and their individual objectives. It does not allow the business to focus on what matters to them, and they are certainly not aligned to their strategy. Additionally, they tend to be meaningless or very difficult to measure and usually include fluffy words such as ‘effective’, ‘improved’, ‘reliable’, ‘efficient’ etc.
Mistake 2 – Focus on activities not results
Another critical mistake is to use KPIs that focus on business activities. For example, ‘number of customer interactions’, ‘number of widgets produced’, or ‘hours worked’ are all activity based measures. Why is this a mistake? Because it focuses on tasks rather than results. For KPIs to be truly effective, they must focus on the desired results. This includes short-term objectives as well as long-term strategic goals. Some examples of results a business may want to monitor include ‘customer’s value our products and services’, ‘our people are engaged’, and ‘our customers have great experiences with us’. See how these are focussed on the desired result rather than on activities?
When we look to develop measures around the results we wish to achieve, it forces us to seriously consider the end-state that we want to reach. This, in turn, makes it easier to determine meaningful measures for those results. Using the above examples, for the result of:
- ‘customers value our products and services’, we may consider measuring Net Promoter Score or an organisational reputation measure.
- ‘our people are engaged’, we might consider measuring staff satisfaction, or employee turnover rates.
- ‘our customers have great experiences with us’, we might consider measuring customer effort or customer journey cycle time.
Can you see how the measures are focused on the results that we want to achieve? If you want your customers to have a great experience with your organisation, measuring customer effort (the degree of difficulty in dealing with you) and customer journey cycle time (time from placing an order to receiving the product), provides two pieces of objective evidence on this. Obviously, we can then set specific targets for each of these measures.
Mistake 3 – No buy-in and ownership of KPIs
We mentioned earlier the difficulty of getting buy-in from management and staff in implementing measures. Staff and stakeholder buy-in is fundamental because without it these people will not use the KPIs to help guide their business decisions and ultimately not be active in helping your business meet its objectives. At Clear Path, we have found the most successful approach is to get key staff involved in determining not just the measures, but also the desired results of the organisation, at all levels. Ultimately this should paint a picture of the organisational day-to-day and strategic objectives across all levels, and allow everyone to see alignment from their day-to-day activities through to the organisation’s high-level strategic purpose. Our experience shows that by getting stakeholders to identify and agree on the desired results, they will accept the KPIs that are identified to measure these same result areas. This is additionally true when staff and management appreciate that the KPIs will not be used as a tool to ‘punish’ them.
Mistake 4 – Searching for the ‘perfect measure’
When identifying measures of your key results, the single most important thing to consider is not whether a measure is the ‘perfect measure’ or whether a measure has ‘perfect integrity’. What’s important is whether the measure has enough accuracy and reliability to be trusted as a source of information that will lead to making better decisions than making no decision, or making an uninformed decision. There is simply no such thing as the ‘perfect measure’.
As we stated earlier, performance measuring is about continuous improvement and focusing on the things that matter. When that becomes embedded in the organisation, it becomes an organisation with a high-performance culture that achieves its goals and objective.
For further information on performance measures or any other issues related to strategy development, financial management, and general business management, or to book a free 1-hour session with our specialists, please contact us at email@example.com or visit our website at www.clearpathconsulting.com.au