Key Performance Indicators (KPIs) are de rigueur these days, and that is a good thing for business. After all, it is hard to accurately plan for success when you are guessing at every turn. While small and large businesses alike are establishing KPIs, there is one thing that is not so de rigueur and that is establishing KPIs that are appropriate, objective, measurable and actionable! Yet, without those important considerations, KPIs aren’t worth the paper they are printed on – or the computer screen they are displayed on!
Appropriate Metrics: Let’s say that you own a company called, ‘Widgets Plus’ and that company manufactures (what else?) widgets. Among the factors that will affect business success: the quality and dependability of the widgets, competitive pricing of the widgets, supplying the right variety of widget sizes, and the timely supply of widgets to your customers. In order to establish appropriate metrics, the management team must focus on the key components of success rather than measuring the number of pens the staff used in the month of August or the average shipping costs for technical manuals. Of course, Widgets Plus cares about its expenses and it is in their best interests to control those expenses, but key metrics must focus on the things that are critical to business success, sales, corporate reputation, competitive positioning and product or service sales.
Analysis 1: John Roper, Senior Sales Manager, Western Region: John has to do better than he did last year. It is my opinion that John can manage his team better and that Bolin Products would buy more widgets if John pushed them harder. Our exec officer, Tim Simmons has demanded a 20% improvement in the Western Region sales numbers by the fall of 2015.
Analysis 2: John Roper, Senior Sales Manager, Western Region: Based on historical data from the years 2011 through 2013, business intelligence forecasts reveal an upward trend in sales of the 2134 widgets to Bolin Products. John’s team lead, Roger Slone will negotiate a contract to increase supply by 5% between 2014 and 2016. Projected price point increases using impact and sensitivity analysis reveal an upswing in competitive response from Stunning Widgets in 2015. Predictive analysis for the regional markets of CO, CA, UT, AZ and NM reveal a downward trend in competitive pricing. Financial forecasts for Widget World reveal a likely downsize in the manufacturing plant and a resulting increase in cycle time to complete production and shipments. In summary, in 2015, John’s team will achieve an overall increase in sales of the 2134 line of widgets by 3% in the Western, and a 4% increase in sales to Bolin Products by the end of the calendar year, 2015.
In Analysis 2, Morgan White is working with clear, concise data gleaned from an integrated business intelligence solution. With this data, he can easily create KPIs that are measurable and founded on facts.
Actionable Metrics: Actionable metrics must drive results and performance. Without understanding the what, why and how of a desired results, it will be next to impossible for the team and the business to achieve those results. Be specific, be detailed!
By establishing appropriate, objective, measurable KPIs, the business can use its Key Performance Indicators as a roadmap to success and business managers and team members will know when they have arrived at their destination, and where to go next.
Selecting a business intelligence tool with comprehensive, intuitive features is a first step toward establishing key performance indicators and, in fact, the information you compile and analyze within the confines of an integrated BI solution will help you test your KPIs and assumptions and refine them even further. Remember, that the process of establishing, monitoring and managing KPIs is not static. The business must constantly assess its position with customers, suppliers, partners, competitors and employees and adjust or change KPIs to better reflect the critical business factors that drive performance.