Keep Your KPIs SMART!

Love them or loathe them, KPIs are everywhere.

Indeed, many of us have KPI targets in our jobs, others have to report on KPIs, but what really is a KPI? In simple terms a KPI is a way of measuring how well we as individuals or how well entire companies or business units are performing. KPI is short for Key Performance Indicator. A KPI should help us understand how well a company, business unit or individual is performing compared to their strategic goals and objectives.

Just think of a sailing trip from Southampton to New York City. Here, the aim of the journey is to take passengers and cargo to the Big Apple — say, in 10days. Once set sail, the captain and crew need navigation data to understand where they are relative to their planned sailing route. In this case useful KPIs might include the GPS location data, average speed, fuel levels, weather information, etc. Together, these metrics (or KPIs) allow the team in charge to understand whether they are on track or veering off route. This enables them to make decisions about where to steer next.

Or when you go to your doctor he might measure blood pressure, cholesterol levels, heart rate and your body mass index as key indicators of your health.

For companies, it is exactly the same. If a company’s goal is to make more money, it might want to measure KPIs such as sales growth, profit margins and operating costs. If a company wants to attract new customers by creating a great brand, it might measure brand equity and brand awareness. And if a company wants to ensure their employees are engaged it might want to measure staff advocacy as a KPI. And if, like most companies, all of the above matter, then it needs a set of KPIs.

The trouble is that there are 1000s of KPIs to chose from and companies often struggle to select the right ones for their business.

The fundamental focus is not just on managers choosing KPIs, but choosing the right ones and creating processes around how to use them for business growth.

Let’s say that as a manager of the breakfast factory, you will work with five indicators to meet your production goals on a daily basis. Which five would they be? Put another way, which five pieces of information would you want to look at each day, immediately upon arriving at your office.”

The wrong KPIs bring the danger of pointing people into the wrong direction and even encouraging them to deliver the wrong things. Always remember, the reason why KPIs are so powerful is that ‘you get what you measure’. If a company measures and rewards the achievement of KPIs that are not in line with their goals then it basically asked the crew to sail into the wrong direction!

Keep your KPI SMART !

A tried and true way to define your organization’s KPIs and relevancy is to tie it to goals established through use of the SMART criteria. Basically this means you’ll need to answer these five questions:

1. Is your objective Specific? — It has to be clear what the KPI exactly measures. There has to be one widely-accepted definition of the KPI to make sure the different users interpret it the same way and, as a result, come to the same and right conclusions which they can act on.

2. Can you Measure progress towards that goal? The KPI has to be measurable to define a standard, budget or norm, to make it possible to measure the actual value and to make the actual value comparable to the budgeted value.

3. Is the goal realistically Attainable? Every KPI has to be measurable to define a standard value for it. It is really important for the acceptance of KPI’s and Peformance Management in general within the organization that this norm is achievable. Nothing is more discouraging than striving for a goal that you will never obtain.

4. How Relevant is the goal to your organization? The KPI must give more insight in the performance of the organization in obtaining its strategy. If a KPI is not measuring a part of the strategy, acting on it doesn’t affect the organizations’ performance. Therefore an irrelevant KPI is useless.

5. What is the Time-frame for achieving this goal? It is important to express the value of the KPI in time. Every KPI only has a meaning if one knows the time dimension in which it is realized. The realization and standardization of the KPI therefore has to be time phased.

Upon determining your key goals, you can get down to the more granular level of determining which key performance indicators are most critical for you to monitor as you pursue those goals.

On the surface, it can seem like cut-and-dry “hard” metrics; a simple mathematical monitoring process you need to do. But there’s a world below the surface. KPIs are one of the most powerful tools available to enable organizations to achieve step-change performance improvement — which should be a core goal of any performance management system.

What is your experience with KPIs? Useful or not? Are they used well in your company or are they just unnecessary noise? Do they provide insights or confuse people? Does your company use the wrong KPIs and is this maybe leading to the wrong behaviours? Share your views…

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