‘Cannabis’ KPIs rule your business?
5 features to save you from delusion

What do KPIs have in common with cannabis? They both are able to distort reality and provide the illusion of control. We believe a professor of London Business School made sense when saying so.

Like cannabis, KPIs can make people addicted. Indicators tend to stick to a company even when they are outdated and nobody needs them. KPIs tend to proliferate because the temptation to measure whatever can be measured is overwhelming. And every new manager coming to the company tends to bring in new KPIs from his or her previous experience.

And when all of the above happen, your business can succumb to chaos. In case you don’t want to fall into a trap of intoxicating KPIs, here are five features of healthy ones that will help you see the reality of your business.

1. Aligned & Connected

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Whatever KPIs you have they should be aligned with the company’s objectives. There’s no sense in focusing on unimportant ones while missing something more valuable. For instance, aiming to increase your customer base by 20% it’s not a good idea to focus on measuring only new customers and ignoring to measure loyal ones.

To make KPIs connected or better, say, ‘related’ to each other, they should be structured first. We suggest structuring them by business functions, as they remain the same whatever happens with organisational structure. KPIs then can be structured at three levels: strategic KPIs for an executive level of a company; functional KPIs for every business function; and metrics – basic performance indicators that serve as starting points for understanding and calculation of all other KPIs. Such structure can help build a hierarchy of interconnected KPIs, like what we have done at Perfex Framework. Connected KPIs reveal a cause-effect influence of metrics on KPIs of business functions all the way up to strategic KPIs of an executive level.

2. Measurable

“If you can’t measure it, you can’t manage it.” Maybe this quotation has already become a cliché to everybody, but it still makes sense. And although measuring quantitative KPIs can be quite easy, qualitative ones can sometimes seem impossible to measure, which is not necessarily the case. For example, the NPS (Net Promoter Score) KPI, which shows the willingness of customers to recommend a retail chain, can be calculated if you carry out customer surveys, and they reveal a goldmine of opportunities for businesses.*

*Don’t hurry to inherit more new KPIs, evaluate resources first and correlate them to what you are going to spend and receive with their help.

3. Simple & Specified

icon 2To make something effective – keep it simple. This strategy works for KPIs as well. Easy-to-understand definitions can help make them clear and interpreted consistently companywide. Such specification helps employees avoid discrepancies in reports and prevents gaming with numbers. What happens when KPIs are vague? Our Telco client, for example, cannot agree on how many active subscribers they have had for the last 10 years. Marketing counts those customers who made at least one call within a period, and Finances counts only those who paid at least once in this period. And it’s not such a rare occasion that these discrepancies cause arguments about who is right.

4. Timely

Although simple, timeliness is a wicked feature to achieve. What happens when KPI results are reported too frequently? Your employees are constantly doing reports instead of doing their jobs. What if KPIs are reported too rarely? You risk making a decision when it’s a bit too late. And when it comes to business, every minute counts. So how to make KPIs timely? The solution is somewhere in the middle, and that’s what you need to work out. To do so, keep an eye on time spent on report preparation and time sensitivity of business specifics. Sensible automation and established relations between KPIs and between reports might also help.

5. Alive

icon 1KPIs are often treated as something fixed forever. Just as your business changes over time, KPIs should be reviewed, adjusted (if necessary), or removed to serve current goals of a company. There’s a tale about a carpet manufacturer that describes how, until recently, employees put ‘zero’ on a daily basis against a KPI called NART in their reports. No one could say what this KPI meant, and no one cared until a new “nosy Parker” manager found out that it stood for ‘Number of Air Raids Today,’ a KPI that had stuck with the company since WWII! This story is probably out of the ordinary, but it underlines how comfortable we are sometimes with KPIs.

Nowadays, we are overwhelmed with thousands of different KPIs. With such a variety, it’s really easy to get lost and focus on psychedelic KPIs that mislead and create chaos in business. So maybe it’s high time to take off rose-tinted glasses and look critically at your KPIs? Do they meet these five features? Yes? Congratulations, you are in the right direction. No? Then perhaps your business is addicted to KPIs that no longer serve your company. Roll up your sleeves and start a KPIs inventory. Here, Perfex Framework could help.

 

 
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