When it comes to running a company, the 3 P’s is a simple but highly effective management construct: People, Product, Process. Do I have the right people, with the right skills, in the right positions? Are my products well aligned to meet market demand, and are they packaged and marketed correctly? Do my business processes enable me to scale and fully leverage my assets?
Core to execution is a deep understanding of how the various aspects of your business are performing.
- How is my workforce performing?
- Where are there inefficiencies/opportunities in our processes and workflow?
- Are our products selling and generating the anticipated ROI?
This is where Key Performance Indicators (“KPIs”) come in, as these questions require data. Relying on instinct and intuition — along with luck — only gets you so far. Data, and its proper use, is the single biggest arbiter between business success and failure. If you aren’t managing your business based upon facts and figures, you’re not only sub-optimized, you’re likely headed for ruin.
Gone are the days when marketers can succeed using the old adage, “half of my marketing budget is working, I just don’t know which half”. Performance metrics in today’s digital world are abundant, which is good news. The bad news is that they are, well, abundant. Using home-grown databases, free products such as Google Analytics, or premium fee-based solutions like Omniture SiteCatalyst, many companies are overwhelmed by the data they have at their fingertips. In many respects, useful data becomes disorienting noise. Intelligence that can lead a business to prosper becomes a detour to demise. The key is figuring out how to harness data in a manner that effectively provides insight into past and current performance, ultimately informing future decisions.
The first step is identifying your KPIs, the core metrics that indicate how your business is performing. KPIs can be set up at both the overall company level and more granularly (e.g. by line or business, by department, etc.), and delivered in the form of dashboards. Here at Business.com, we have an executive KPI that details the company’s top 5 high level indicators, as well departmental KPI dashboards for our Sales, Marketing, Operations and Product teams.
When architecting KPIs, there are two main considerations:
1) What qualifies for KPI status?
- It must be quantifiable: Often, companies will establish KPIs that they cannot accurately measure. If you can’t report on a KPI with absolute confidence, remove it until you’ve solved your data reporting challenge.
- It should illuminate performance that is actionable: If a KPI doesn’t allow you to dig further and/or take corrective action, it isn’t worth including.
- It needs to tie to initiatives that are core to your success: An easy question to ask when selecting KPIs is this: “If this indicator moved significantly in either direction, would it have a meaningful impact on the business?”. If the answer is “no”, move on.
- It should have an established goal: Simply identifying a numerical increase or decrease isn’t enough… it’s the magnitude that truly matters. More importantly, the goal should also map to the overall company budget.
2) How many KPIs are appropriate?
- The fewer the better. Period. Most companies allow for KPI creep, whereby their KPI dashboard becomes a series of spreadsheets that create a “deep in the weeds” discussion, rather than a high level exercise of identifying areas of focus and action.
My recommendation is to error on the side of simplicity. Choose a narrow set of metrics that you can confidently report on and which provide a high level view of your performance. Less is more, especially when getting started. The questions stimulated by your analysis of these KPIs will guide your KPI evolution, and almost certainly spawn more refined and actionable dashboards. (Image Source: freedigitalphotos.net)