There is a lot of buzz on the internet about key performance indicators (KPIs). While they can be important indicators of performance, most of the businesses we contact are limping along with poorly crafted KPIs, if they are using KPIs at all. A relevant KPI is much more than just a scalar (e.g. solely a magnitude), taking the temperature of your performance. A great KPI is a vector (e.g. magnitude AND direction) that informs all the leaders in a company whether or not their ERP implementation is aligned with their strategic goals. To make matters more confusing, there are many websites devoted to KPIs that proliferate hundreds of samples.
Rather than thinking of KPIs as a surfboard to catch that elusive wave of success, take a moment to consider if you are measuring what truly needs to be measured. Are your KPIs meaningful and tied to strategic objectives? Or are you measuring KPIs for the sake of measuring something? Remember, activity does not always equal progress. Does your company really need to measure dozens of KPIs or should you concentrate on just a few insightful indicators? Any MBA will tell you that a good KPI is SMART – that is, Specific, Measurable, Achievable, Relevant and Time-oriented. I agree but also believe an exceptional KPI is Clear, Concise and Memorable.
Clear. A KPI needs to be immediately recognizable. A KPI must be easy to understand to the most casual of observers. While there are several ways to measure performance, the most important ones are clear to see but can be difficult to measure. Do the hard work, lean into it and create a KPI that resonates. A clear KPI makes sense and is measurable. A clear KPI is actionable and unambiguously tied to strategic goal. A KPI like customer satisfaction is a great example. Everyone in the company understands the importance of satisfied customers and clearly understands how happy customers are tied to strategic goals.
Concise. Just like Sgt. Joe Friday on Dragnet, I believe KPIs should be “just the facts, ma’am.” KPIs must be described in the King’s English and ideally fit into one concise sentence. If it takes more than a twitter feed to describe your KPI, you may want to consider how you are defining your KPI. While it is true that some things need a definition longer than 140 characters, if you go much longer than that and your KPI might get lost in the static.
“Preventative maintenance hours” is an excellent and concise KPI. It has the advantage of also being a leading indicator. It measures performance before a process result (e.g. failed machinery). We had a client that defined preventative maintenance on their critical equipment as the percentage of the following ratio: (Number of preventative hours performed per machine) / (Number of hours recommended by the manufacturer of the machine). They were shooting for a score above 95% and crafted a concise and meaningful KPI that would help them predict the future performance of critical machinery.
Memorable. Clients are busy. They have full days. Pile on an ERP implementation and they are trying to shove ten pounds into an eight pound sock. Having an easy to remember KPI not only makes it sticky but ensures it will get used. Return on investment (ROI) is a clear, concise and memorable KPI. It measures performance everywhere and not just in the financial department. ROI is tied firmly to strategic goals by stating if the gain of an investment justified the cost. It even sings, “Yippie Ki Yi, we have a high ROI!” Well, maybe you do not get as excited about KPI’s as Panorama Consulting Solutions does but we know poetry when we see it.
At Panorama Consulting Solutions, we know how to find the singing KPI’s in your organization. We can help your business tune up its current state and help you pursue a future worth having. Our PERFECT Fit™ methodology enables us to reveal your company potential and generate a healthy ROI from our consulting services. We will ensure that you are on track in pursuit of your strategic goals.
Disclaimer: singing your KPIs is not typically part of the PERFECT Fit offering and may incur cringe-worthy moments.
Written by Rich Farrell, Senior Manager of Client Services at Panorama Consulting Solutions.