Quick Guide and Model for Developing Effective Key Performance Indicators

If you are not sure what KPIs and metrics you should use to better manage and monitor your business performance you are not alone, Our recent survey of 138 business users showed that 72% of business professionals are having a hard time to finalize their list of top KPIs and related metrics they should track and monitor continuously in order to improve their business insight. It takes a lot of energy to simplify everything you do into a reporting system which will represent your actual business results, identify the progress and performance gaps and help you be a better and more effective manager. The good news is that you already took the first and the most critical step – you made a decision to convert your business strategy and key business initiatives into a meaningful and effective performance dashboard reporting system where your strategy is converted into critical success factors, KPIs, metrics and targets aligned with your business goals and objectives. Here are a few quick and simple tips you should consider and take into account while you are working on creating your top list of relevant business metrics and key performance indicators for your company. 1. Your KPIs must show actionable information for your business There is no point in measuring anything unless you are able to manage what drives the metric and unless you are able to change the outcome and results out of the specific KPI. How to achieve this? Start with your business strategy, goals and top initiatives - use the PDF template. List your major and most critical initiatives and brainstorm ideas how you could measure the ongoing progress of each initiative. Your KPIs have to show the progress from point A to B and help you identify the gaps in your performance. 2. Diversify your metrics Keep in mind that you should diversify (balance) your KPIs in a way that you take into consideration performance from various functions. For instance, the balanced scorecard approach gives a good example for incorporating business metrics from different categories like financial and non-financial sources. This is true not only for top level dashboard KPIs but also for functional and local dashboard reporting. For example, HR performance and team performance metrics should be part of any functional report; in addition financial metrics and growth and development KPIs should be incorporated as well. Example of this approach would be a sales dashboard incorporating ongoing monitoring of team, development and financial metrics. The bottomline is that by creating KPI diversification you are making sure that you are getting the big picture overview of your business. 3. Your KPIs should be driven by and aligned with your strategic goals Start with your strategic organizational goals and functional goals. Your business goals are typically achieved through various initiatives - so your job now is to create a list of metrics to be able to measure and monitor the performance and outcomes of your initiatives. For example, if one of your your top business initiatives is improving quality you should make sure you create the relevant KPIs you’ll use continuously to measure the progress of your quality improvement. Another example is an initiative for improving your sales pipeline performance which requires breaking down your sales pipeline stages and steps and assigning relevant metrics for each step which will allow you to track performance time after time. The process is simple: Objective > Initiative > KPI > Target
4. Simple metrics Simple to use metrics means everyone on your team and every report user is aware what your KPIs and metrics mean. The last thing you want to do is create a disconnect between reality and your KPI dashboard report. For instance, if your people are not able to clearly understand the reason for measuring certain outcomes and results you might want to step back and adjust your approach. Simply what you talk about on your meetings (your real issues and critical for success factors) must be incorporated in your dashboard as well. 5. Types of scorecard reports you could use The very first approach every business manager takes is creating the dashboard KPIs for the overall business and that's a great starting point. However there are many additional scorecard reports you could use to improve your business insight and make better decisions. Here are a few examples of KPI dashboard or scorecard report types you should consider - of course use the ones which are relevant to your business model (any of your excel dashboard templates can be used to quickly create any of these scorecards for your business): a. Vendor Scorecard This is a very useful approach and type of scorecard when your performance depends on your vendor performance. When a great deal of your business needs are supplied by a single or a very few vendors and their performance is critical for your business performance like time, deliveries, customer satisfaction, cost performances, quality issues, etc. you can and you should use this reporting approach for a single supplier or multiple suppliers and track and compare their results. Set clear expectations and this process will show you the KPIs you will need to report. b. Client Scorecard Many B2B businesses – small and large companies depend on a few major clients. In such a case it is critical to be proactive and monitor the overall as well as specific client related metrics. This approach can be used to improve your business, find new opportunities and report the results to the client. The one highly effective approach we have found is to create client or customer saving scorecard where you can report the cost savings and high performance you have delivered each month or quarter. This in addition is a great marketing and customer retention tool for your company. c. Distributor Scorecard This is a critical scorecard when distributors in your value chain deliver your products to the end customers. In many cases the end customers are not even aware of the distributor role but they are expecting your brand value and have certain expectations from your organization. Since a distributor is the actual connection between your business and your customer you should consider using distributor scorecard with very clear expectations. d. Product Scorecard This approach can be used by top management, marketing, sales, production, quality… and just about any management position when large part of your business is driven by a single or a few products. This can be a single product or product line/type. Product performance metrics may include any metrics from revenue, sales growth, quality issues, number of units, number of new customers, etc. e. Customer Satisfaction Scorecard This scorecard type can be used by any business organization. The metrics can be developed based on regular customer surveys, customer input as well as other company data like number of complaints, number of returns, number of returning customers, etc. In addition you can create an overall customer satisfaction index which is a single KPI you can continuously monitor based on weighted values of various other metrics. f. Lead Generation Scorecard Every business needs new customers and improving your lead generation process and sales pipeline is always a top priority for the business. By breaking down your existing lead generation process you can identify actionable and relevant metrics at each stage and organize them into your excel dashboard. Now you can monitor your lead generation performance on an ongoing basis and understand how you can improve your results and achieve your objectives and targets.