Are Key Performance Indicators (KPI’s) necessary for success?

During a recent Business Exposure Group meeting the question raised was ‘whether Key Performance Indicators (KPI’s) were necessary for success’. 

What became clear from the start was that the MD’s around the table were from two different schools of thought.  There were those who swore by them explaining that KPI’s tell the business owner the reality of the business.  Stating it allows the owner to react and make constant changes to the operation of the business, instead of waiting until it is too late.

Others, around the table, took the view that KPI’s only look at the past.  The metrics can concentrate on the wrong goals and therefore what’s the point.

However, after a lively debate, all agreed that KPI’s are important to a business because it helps all staff to focus on common goals and ensure that those goals stay aligned within the business.  KPI’s help the business to stay on track and work on meaningful projects that will assist in reaching objectives faster.

For KPI’s to add true value, they must be customised around what is in fact unique to your business.  But all agreed that they need to be simple and limited to say 6-12 in number.

David Walker, who attended the meeting, commented that in business ‘we have dozens of metrics that let us know that things are running fine on a daily basis.  With KPI’s we elevate a few of our most important metrics to become strategic touchstones for our team, allowing them to concentrate on those areas of the business that are not on track’.

KPI’s deal with three types of data:

1          Raw numbers. eg how many new customers obtained this month.  How many complaints this month

2          Progress. eg we are 95% towards completion of a project

3          % change. eg increase in sales over the last period

Many of the participants had developed ‘dashboards’ to show either by colour, red, amber, green or by graph how their business was doing, and these were either monitored on a daily or monthly basis.

Anne Little stated that as soon as she turns her computer on in a morning, the first thing she gets is the KPI dashboard, and then she can focus her attention on the items which are not ahead of target, which is great time management, and results in her not filling her day with non-proactive tasks.

Some of the group used the Balanced Score Card which breaks down the KPI into categories.

a          financial perspective – gross margin/overheads/new business/debtors

b          customer perspective – on time contracted delivery/complaints/customer

survey/new customers acquired

c          internal process perspective – staff utilization/lost time/overtime

d          learning and growth perspective – employee satisfaction/number of crossfunctional teams/closing the skills gap

Buy in to the above scorecard, gives the business owner a comprehensive overview of the resilience of the business, but nevertheless everyone agreed that it was folly to let the cost of measuring data exceed the value of the results.

But there was a strong message from around the room that the real value of KPI’s is in the discussion of the results with members of your team, not the numbers themselves.

If you have any further thoughts on this article then please contribute your comments by adding to the discussion on the blog site.

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