I recently had a Groundhog Day conversation (for about the 100th time) about Key Performance Indicators (KPIs).
People think that they need to set up a dashboard as a solution to KPIs. But most of the time, they end up with an automated system that doesn’t measure the right things. They are full of useless or too much information, not presented in a way that creates a simple story that enables managers to make better decisions. And they are not put into regular reporting so that managers or leaders can make better decisions, on an hourly, daily or weekly basis.
Many companies don’t have any at all, especially smaller companies.
What is a KPI?
Since the term “KPI” is used in different ways, let’s define the term. In my world, KPIs are measures of the health and performance of a business overall – or a department, a team or individual team member.
There are two different types:
- Operational health measures – like the percentage of uptime or percentage of rejections for quality issues in a manufacturing facility. Some call these leading indicators.
- Financial performance measures – show how different pieces of the business are performing on a monthly, quarterly or annual basis, based on measures or ratios of the income statement or balance sheet. For example, these can be related to the accounting team’s financial statements or labour costs as a percentage of sales for a manufacturing facility, or the cost of production per unit.
While there are many different KPI models and frameworks, ideally:
- The CEO and executive team have a set of KPIs that indicate the health of the entire business, and how effectively they are executing on their long-term strategy. For many companies we work with, this would be the handful of KPIs that measure the health of their flywheel
- Each department has KPIs to know when they’re winning and losing
- Each team member has two or three KPIs.
An Ideal State
The ideal state is that I could sit down with your executive team and, by reviewing your KPIs, get a sense of the overall health of the whole enterprise – and each department or team – in five minutes. I’d know what to celebrate and where to dig in to ask more questions.
The Challenge
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- Whether it’s weekly or monthly, do you have the right KPIs to know the health of your business overall? Of each department?
- If so, congratulations! If not, which KPIs do you need to define and get regular reporting on to help you and your team understand and improve the performance of your business most?
Additional blogs
- Do You Have the Right Elements to Hold Your Team Accountable?
- Mastering & Powering Up Your Company Flywheel
- Key Performance Indicators – What’s Most Important?
Old Podcasts
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