Business metrics matter. They measure how successful a company is and well it is performing. We seem to live in a world saturated with data, metrics, and performance reports. Our corporate rivers are overflowing with them drenching everything in numbers and targets, drowning us in data, while leaving is gasping for insights.
I have helped hundreds of companies, from major international blue chips to small family-owned businesses, develop KPIs. KPIs stands for Key Performance Indicators and most companies and government organization are either drowning in them and/or are using them so badly that they are leading to un-intended behaviors.
What I have learned over the years working with companies is that there are 4 KPIs that are absolutely crucial for any business, or indeed government organization.
These four are the same KPIs that come out of every workshop I run with executive from all over the world, across all different types of industries. To get to these four metrics, I create a simple exercise and say to them: “You are running this business and want to understand how well the business is performing. You now have to select KPIs for the business and those metrics are the only management information you can use to judge whether the business is doing well or not. The challenge is that you have to agree on only 4 and together they should give you a complete picture.”
This, by the way, is a great exercise you can do in your own company,
with your own team, or your own clients and is one that sits in stark contrast to the way KPIs are usually developed: Brainstorming what we could possibly measure and ending up in a position where we measure everything that walks and moves and nothing that matters!
Anyway, the four KPIs that always come out of these workshops are:
- Financial Performance Index
- Customer Satisfaction Assessment
- Internal Process Quality
- Employee Satisfaction
Here are the reasons why these KPIs are picked time and time again.
Financial Performance Index: Money matters to any organization. A publicly listed business needs to ensure it satisfies shareholders by delivering turnover growth and healthy profits, not-for-profits or government bodies have to demonstrate they delivers value for money to the tax payer. Small businesses have to watch their cash flow and even internal functions have to ensure they control costs and generate efficiency savings. The key metrics to use for a financial performance index are sales growth, net profit margin and cash flow.
Customer Satisfaction: Without customers companies wouldn’t exist. Any organization has customers it has to satisfy. For example: Big commercial companies have customers that buy their products or services, government organizations have customers they serve, and an internal function has customers (e.g. their co-workers in other departments) to whom they deliver services. Any business, government or not-for-profit organization has to ensure it delivers to their customers. My favorite ways to measure customer satisfaction are e.g. the Net Promoter Score, customer engagement and customer retention.
Internal Process Quality: Companies need to make sure their services and products are to the expected standards and that they optimize the way these products or services are delivered. It doesn’t matter whether you a multi-billion dollar corporation, a not-for-profit body or a shared services function, all of them have to ensure their processes are as efficient and effective as possible and deliver the quality their customers expect. Here I would recommend metrics such as capacity utilization, project performance, order fulfillment or product / service quality.
Employee Satisfaction: Even though I have written about elimination of human jobs through the use of artificial intelligence and big data robots, we can safely say that employees are still the most important ingredients in any business. We all know that companies don’t do well if their employees are not happy and this again applies to all enterprises. The people in any organization are the ultimate drivers of success or failure. Ways you can measure employee satisfaction include staff advocacy scores, employee engagement and absenteeism.
So here we have it: the four KPIs everyone needs to understand. So, if you are seeking relevant and meaningful KPIs, simply start with those four and develop meaningful ways to measure and monitor them.
If you would like a little more insights on how the measure some of these KPIs and how to develop meaningful performance management framework, check out www.ap-institute.com where you can find a free KPI library as well as many relevant articles and case studies.