Key Performance Indicators For Dummies E-Book

Bernard Marr

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 460

Veröffentlichungsjahr: 2015

Beschreibung

A complete guide to using KPIs to drive organisational performance Is your business on track to achieve success? Key Performance Indicators For Dummies covers the essential KPIs that are useful to all kinds of businesses, and includes more than 100 different ways leaders can monitor and drive performance in their organisations. This book helps managers understand the crucial KPIs that should be implemented for all different aspects of the organisation, including financial performance, operational and internal processes, sales and marketing, customer satisfaction and more. Good KPIs should be unique to every business, as every business has different objectives. To meet this need, the book provides tools and templates that leaders can use to develop unique KPIs that best suit their particular organisation or industry. * Learn to design KPIs that are unique to your business and fit closely to your strategic objectives * Determine which KPI questions you should be asking to achieve the right insights for your business * Learn the specific KPIs that are appropriate for different business circumstances * Turn KPIs into deep insights by mastering related reporting and communications practices KPIs are a crucial part of every manager's toolkit, and are essential for helping to monitor the execution of business strategies and measure results. Key Performance Indicators For Dummies moves beyond a basic discussion of what KPIs are, and why they are needed to provide a complete guide for learning to design and use specific KPIs to drive organisational performance.

Leseprobe

Key Performance Indicators For Dummies®

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This edition first published 2015

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Key Performance Indicators For Dummies®

Visit www.dummies.com/cheatsheet/kpis to view this book's cheat sheet.

Table of Contents

Introduction

About This Book

Foolish Assumptions

Icons Used in This Book

Beyond the Book

Where to Go from Here

Part I: Getting Started with Key Performance Indicators

Chapter 1: Introducing Key Performance Indicators (KPIs)

Why Every Company Needs KPIs

The Fishing Analogy

The Datafication of our World

KPIs as vital decision support tools

Making KPIs Work in Your Business

Create a KPI culture

Decide on the right KPI framework

Develop the right KPIs

Analyse and report

Assessing Your Financial KPIs

Revenue and profit

Liquidity and cash flow

Shareholder value

Financial efficiency

Assessing Your Customer KPIs

Customer satisfaction and loyalty

Market share

Assessing Your Operational KPIs

Project performance

Efficiency and quality

IT

Assessing Your Employee KPIs

Employee engagement

Talent retention

Chapter 2: Types, Targets and KPI Mistakes

Understanding that KPIs can be Strategic or Operational

The pear tree analogy

Why we can measure everything and how to do it

Creating the Right Set of KPIs

What is a good number of KPIs?

Tracking the tangible and intangible

The leaders and the laggers

Setting the Right Targets for Your KPIs

KPIs vs. targets

Making targets specific

Making targets realistic and achievable

Knowing Where People Go Wrong with KPIs

Measuring everything that walks and moves

Collecting the same measures as everyone else

Not choosing the relevant KPIs

Chapter 3: Creating a Culture of Fact-Based Decision-Making

Implementing the Key Components of Fact-Based Management

Establishing senior management buy-in

Introducing KPIs for the right reasons

Establishing the processes and culture

Creating Improvement and Performance Preview Meetings

Introducing strategy revision meetings

Establishing strategic performance preview meetings

Putting in place operational performance improvement meetings

Aligning personal performance discussions

Chapter 4: Organising Your KPIs

Understanding the Need for KPI Frameworks

Weighing the options

Selecting the right framework

Introducing the Balanced Scorecard

Getting a grasp of the four BSC perspectives

Tackling the financial perspective

Making sure you’re delivering to your customers

Looking at your internal processes

Improving and driving future value

Putting it on paper and mapping it out

Looking at Alternative KPI Frameworks

Using Quality or Lean Frameworks

Using Project Management Frameworks

The Risky Side of Business

Part II: Implementing and Using KPIs Effectively

Chapter 5: Developing a KPI

The Question is The Answer: Developing Key Performance Questions (KPQs)

Harnessing the power of questions

Creating good key performance questions (KPQs)

Deciding on the Right KPIs

Step 1: Linking KPIs to strategic objectives

Step 2: Identifying the unanswered questions

Step 3: Isolating the decisions to take

Step 4: Checking for existing data and methods

Step 5: Collecting meaningful data in time

Step 6: Assessing the usefulness to answering the question

Step 7: Assessing the usefulness to decision-making

Step 8: Creating awareness of cheating

Step 9: Are the costs and effort justified?

Step 10: Collecting the data

Making it work: the ten-step template in action

Deciding on How to Collect the Data

Identifying types of data

Applying quantitative methods

Understanding qualitative methods

Combining data to improve insights

The big data challenge

Finalising Your KPIs: Applying the KPI Design Template

The basics

Completing your KPI Template

How good is the indicator?

Chapter 6: Use it or Lose it: Turning KPIs into Insights

Testing Cause and Effect Relationships

Why strategies are just assumptions

Testing your assumptions

Testing Business Assumptions at Google, Inc.

Learning from Business Experiments

Removing Bias through Business Experiments

Business Intelligence and Analytics

Datafication

Analytics

Chapter 7: Spreading the Word: Reporting and Communicating KPIs Effectively

Getting the Attention of the Decision Maker

The importance of communicating

Keeping in mind the target audience

Using best practice performance reports

Publishing analogy

Headline, photo and narrative

Visualising KPIs: Using Graphs and Charts

Bar graph

Line graph

Pie chart

Scatter chart

Bullet graph

Speedometer dials or gauges

Using innovative ways to visualise data

Developing Management Dashboards

Seven dashboard design tips

Making use of software tools

Part III: Developing Financial KPIs

Chapter 8: The Holy Grail of Business: Revenue and Profit KPIs

The Bottom Line – Gauging Profit

Profit means prizes

Understanding the different perspectives on profit

Why profit only matters in context

Measuring profit in practice

Measuring Profit Margins

Why margins are so vital

Knowing the different profit margins

Measuring profit margins in practice

The Top-Line: Measuring Revenue Growth

When revenue isn’t everything

Why you should track revenue over time

Measuring revenue in practice

Chapter 9: The Ones You Can’t Take Your Eyes Off: Liquidity and Cash Flow KPIs

Tracking Your Cash

Why cash is king

What cash flow tells you about your business

Measuring cash flow in practice

Looking Out for Liquidity

The often unseen danger

Measuring liquidity in practice

Chapter 10: Reporting to the Masters: Shareholder and Value-Added KPIs

The Ultimate Value Metric: EVA

Why profitable companies might not create value

Understanding opportunity cost

Measuring opportunity cost in practice

Keeping an Eye on Your Share Price

It’s all relative: comparing businesses

Measuring P/E ratio in practice

Tracking Total Shareholder Return (TSR)

Competition is stiff on the stock market

Measuring TSR in practice

Chapter 11: Measuring Your Financial Efficiency

Assessing the Return on Investment

Every investment must yield a return

Measuring ROI in practice

Measuring the Return on Capital Employed

Understanding ROCE

Measuring ROCE in practice

Gauging Return on Equity (ROE)

Why should you measure ROE

Measuring ROE in practice

Understanding Return on Assets (ROA)

Why does ROA matter to companies?

Measuring ROA in practice

Part IV: Developing Customer, Sales and Marketing KPIs

Chapter 12: The Customer is Always Right: Measuring Your Customer Success

Asking if Your Customers Would Recommend You (NPS)

How NPS drives loyalty and profitability

Understanding the NPS formula

Measuring NPS in practice

Measuring How Satisfied Your Customers Are (Satisfaction Index)

Identifying what makes your customers happy

Creating your unique index

Measuring CSI in practice

Tracking How Likely Your Customers are To Leave (Retention/Churn)

Churn and retention matters!

Measuring it in practice

Gauging Whether All Customers are Equal (Profitability)

Understanding where the profits are made

Tracking customer profitability

Measuring it in practice

Calculating Your Customers’ Value (Life-Time Value)

The ultimate customer KPI!

Measuring it in practice

Measuring Whether Your Customers are Truly Engaged

Understanding the different levels of engagement

Measuring engagement in practice

Chapter 13: Measuring the Market and Your Place in It

Painting a Picture of Your Market (Market Growth Rate)

Understanding the health of your market

Options for measuring market growth rate

Measuring market growth rate in practice

Understanding Your Place in the Market (Market Share)

Why market share matters

Getting a good picture of your market can be tough

Measuring relative market share in practice

Gauging Your Market Success (Customer Acquisition KPIs)

Knowing the cost of finding new customers

Options for gauging customer conversion

Measuring cost per lead in practice

Charting the Power of Your Brand

What brand equity means for your business

Finding your unique formula

Measuring brand equity in practice

Part V: Developing Operational and Internal Process KPIs

Chapter 14: Measuring Project Performance

Why Project Performance Matters

Introducing the Three Components of Project Performance

Tracking whether your projects are on time (Project Schedule Variance)

Measuring whether your projects are on budget (Project Cost Variance)

Checking whether your projects are delivering the right value (Earned Value)

Measuring the KPIs in practice

Chapter 15: Measuring Internal Efficiency and Quality

Assessing Quality, Lean and Six Sigma KPIs

Why Lean matters

What does Six Sigma really mean?

Finding your ways to track quality

Measuring the KPIs in practice

Calculating Your Internal Productivity

Looking at waste levels

Monitoring rework levels

Scrutinizing order fulfilment

Dissecting delivery

Investigating inventory

Asking Yourself Whether You’re Future Proof

Your innovation pipeline

Chapter 16: Measuring IT Performance

Why IT Matters More Than Ever

Measuring IT service delivery

Measuring IT project performance

Part VI: Measuring Your Most Important Assets: Developing HR and People KPIs

Chapter 17: Measuring People Performance

How Satisfied and Engaged are Your People?

Satisfaction and engagement matters

Measuring satisfaction and engagement in practice

Would your Employees Recommend Your Business?

Measuring the trends

Measuring staff advocacy in practice

Looking All Around – 360 Degree Feedback

Understanding the need for a full picture

Measuring 360-degree feedback in practice

How Much Value Are Employees Generating?

Measuring the value your employees generate in practice

Chapter 18: Measuring Human Resources Performance

Charting How Well You’re Recruiting

Finding and keeping talent

Moving beyond the trivial

Measuring recruitment effectiveness in practice

Analysing How Well You’re Training

The pitfalls and challenges of measuring training

Measuring it in practice

Part VII: The Part of Tens

Chapter 19: Ten Tips for Developing Effective KPIs

Map Your Strategy

Identify the Questions You Need to Answer

Define Your Data Needs

Evaluate All Existing Data

Find the Right Measurement Methodology

Assign Ownership

Identify the Right Measurement Frequency

Ensure Costs and Efforts are Justified

Find the Right Supporting Data

Finding the Right Picture to Communicate your KPI

Chapter 20: The Ten Biggest KPI Mistakes to Avoid

Measure Everything That is Easy to Measure

Measure Everything Everyone Else is Measuring

Not Linking KPIs to Strategy

Not Separating Strategic KPIs from Other Data

Hardwiring KPIs to Incentives

Not Involving Executives in the KPI Selection

Not Analysing Your KPIs to Extract Insights

Not Challenging Your KPIs

Not Updating Your KPIs

Not Acting on Your KPIs

Chapter 21: The Top Ten KPIs to Use

Revenue Growth Rate

Net Profit Margin

Cash Conversion Cycle (CCC)

Net Promoter Score

Customer Engagement

Customer Profitability

Relative Market Share

Capacity Utilisation Rate (CUR)

Staff Advocacy Score

Sustainability Index

About the Author

Cheat Sheet

More Dummies Products

Guide

Table of Contents

Begin Reading

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Introduction

If you were to eavesdrop on just about any management or executive meeting, strategy session or performance review in any business you would hear the term ‘KPI’ mentioned many times in many different contexts. Most people in those discussions would know that the acronym stands for Key Performance Indicators but if you pressed each person to explain what a KPI actually is, it’s likely that you would hear many different definitions.

Business is challenging, especially during difficult economic times. It is also extremely competitive and our customers are becoming increasingly discerning. As a result business leaders and senior executives are all looking to improve performance, minimise errors and seek out new and novel ways to gain the edge over their competition. KPIs – when properly understood and used effectively provide a powerful tool in achieving just that.

Key Performance Indicators for Dummies was written as the definitive guide to KPIs for anyone wishing to separate the rhetoric and flavour-of-the-month- management fad approach from the genuinely useful information. Whilst coving the relevant theory this book is focused squarely on practical solutions to persistent business problems that KPIs can and do solve.

KPIs are a ubiquitous in modern business. They are everywhere – common almost. And yet businesses that are using KPIs correctly and effectively are not common. Knowing about KPIs and understanding their relevance is of course important and we’ll explore these essential topics in this book. But, when push comes to shove KPIs are only really useful if you identify the right ones to measure for your business and only measure those ones. They will only deliver mission critical data if you then use the KPIs and analyse what they tell you on a regular basis to inform and illuminate your decision making.

This book is therefore specifically designed to ensure that you design, implement and use KPIs correctly for the maximum impact with the minimum fuss. When used properly KPIs can become the compass that can guide you through even the choppiest of corporate waters leading your business to even greater success and prosperity.

About This Book

Key Performance Indicators for Dummies is your essential guide, or road map to effective KPIs and their successful implementation. It is jammed full of practical information, ideas, suggestions, tips, checklists, sample diagrams and figures designed to help anyone who wants to get the best out of KPIs. And that is true regardless of the type of business or industry you are in. KPIs are relevant to all businesses, in all industries as well as government departments and not for profit organisations.

The information contained in this book is deliberately accessible and covers everything you need to know about KPIs from the basics to more sophisticated insights that could further improve and fine tune existing KPI initiatives. As a result this book is essential reading whether you are new to business, in your first management role or a seasoned professional seeking some additional nuggets of wisdom to help squeeze just a little more value out of KPIs. If you are already familiar with KPIs this book will shine some light on the common problems or mistakes people make so you can rectify any errors that may be impairing your results. Re-inventing the wheel is time consuming and costly – learn from other people’s mistakes instead and make your KPIs matter right now. Ensure that they are the useful, insight and powerful business tools they were designed to be right from the start.

Consider this book your KPI reference guide and come back to it often. Try out the ideas and band and shape the advice to suit your situation in your business. Make it your own and allow KPIs to revolutionise your performance, inform your decision making and drive your strategy.

In order to make reading this book as easy as possible certain things are treated consistently:

All Web addresses appear in monofontNew terms appear in italics and are closely followed by an easy-to-understand definition.Bold text indicates keywords in bulleted lists or highlights the action parts of numbered steps.

If you decide to visit a Website listed in the book then you just need to copy the Web addresses exactly as it appears in the book. This is true even if the address falls between two pages – we will not have inserted any extra characters (such as hyphens) into the text.

Foolish Assumptions

In order to write a book you need to think about the audience. Who is most likely to read this book and once you know that you need to speak to that audience. For this book I’ve assumed that you are a manger, senior executive or leader within a business, government department or not-for-profit organisation seeking to better understand and utilise KPIs and improve performance. And I’ve also assumed that you are in a position to make changes or at least table changes within your organisation so that you can actually action what you read.

Icons Used in This Book

No one likes huge blocks of daunting text! These little icons are used to break up the text so that it’s easier and more enjoyable to read. They also flag important information and help you find that information again when you come back to the book.

These indicate expert advice or suggestions to fast track success. They are intended to help save time, effort, money or brain cells as you implement KPIs into your business.

This icon flags critical material that you should store away in your memory for later use. But don’t worry – they are usually very short.

As the name would suggest this icon flags potential pitfalls that you need to avoid as you become more and more familiar with KPIs.

The quickest, easiest and often most enjoyable way to really ‘get’ something is to read a true story, case study or real world example of the theory in practice. This icon flags those stories so you can learn quickly – often from others who have already walked your path.

Beyond the Book

In addition to the material in the print or e-book you’re reading right now, this product also comes with some access-anywhere goodies on the Web. Check out the free Cheat Sheet at www.dummies.com/cheatsheet/kpis for some helpful key checklists.

Furthermore, check out the website of the Advanced Performance Institute, which I founded and head up. There you will find many relevant case studies, white papers and reading material on KPIs and performance management: www.ap-institute.com.

Where to Go from Here

That’s entirely up to you. You can read this book in order from Chapter 1 to Chapter 21, but you don’t have to. So where you start reading will depend on how familiar and comfortable you are with KPIs already.

If you are new to KPIs, or are interested in or charged with designing a KPI agenda for your business, or changing the way KPIs are measured in your business then start at the beginning. Otherwise use the table of contents to find what you are most interested in and jump straight to that section. Whatever reading approach you take you will find a treasure trove of information that will allow you to unlock the power of KPIs for your business.

Part I

Getting Started with Key Performance Indicators

For Dummies can help you get started with lots of subjects. Go to www.dummies.com to learn more and do more with For Dummies.

In this part …

Understand how everything in your business can be measured.Get to grips with what KPIs are and how you can benefit from using them.Become aware of the importance of evidence-based decision making.Learn to use KPIs to enact and enhance your business strategy.

Chapter 1

Introducing Key Performance Indicators (KPIs)

In This Chapter

Understanding KPI basics

Identifying the most common errors

Identifying the key business areas to measure

So what the heck are Key Performance Indicators (KPIs) anyway?

KPIs help organisations understand how well they are performing in relation to their strategic goals and objectives. In the broadest sense, a KPI provides the most important performance information that enables organisations or their stakeholders to understand whether the organisation is on track toward its stated objectives or not. In addition KPIs serve to reduce the complex nature of organisational performance to a small, manageable number of key indicators that provide evidence that can in turn assist decision making and ultimately improve performance.

If you think about it, this is the same logical approach we use in our daily lives. Say you are not feeling very well and decide to visit your doctor. She may ask you what is wrong but she’s immediately searching for evidence to qualify your subjective opinion. She may, for example, take your blood pressure and measure your cholesterol levels, heart rate and body mass index as key indicators of your health. With KPIs we are trying to do the same in our organisations. And without them we are flying blind, relying on the often subjective assessment and opinion of key personnel.

In practice, the term KPI is overused and misunderstood. Too often, KPIs are assumed to be financial in nature or simply the numerical measures we can most easily count. However, such a definition is much too narrow. The data for KPIs can come from myriad sources, providing the best possible answer to your most important business questions. Anything, even the most esoteric or intangible elements of business can be measured simply by tracking the difference between one thing and another. If you can observe a move from one state, situation or element of performance to another that is strategically or operationally important to the success of your business then you can measure it. And if this is helping you to answer a critical business question then that measurement is a KPI.

Unfortunately there is often a disconnect between whether something can be measured and whether it should be measured. Instead of clearly identifying the information needed, and then carefully designing the most appropriate indicators to assess performance, businesses too often implement KPIs using what I call the ‘ICE’ approach:

Identify everything that is easy to measure and countCollect and report the data on everything that is easy to measure and countEnd up scratching your head thinking, ‘What on earth does this all mean and what are we going to do with all this performance data?’

This opening chapter is designed to cover the basics of KPIs, explain what they are and why companies need them, and offers as a brief glimpse into what I’ll cover in more detail in the rest of the book.

Why Every Company Needs KPIs

KPIs act like navigation tools for your business and allow you to know where you are against where you think you are or where you want to be in the same way a compass would guide a fishing voyage.

The Fishing Analogy

As long as there have been fish, human beings have been fishing. Initially our efforts were probably pretty basic consisting of a net, a line and a stick! Over time we progressed to small boats and were able to search for fish further afield. By the 16th century fishermen had much larger boats capable of going to sea in search of bigger and bigger catches. Initially the ships would set out using little more than a compass, a sextant and some ‘inside knowledge’ passed down generations of fishing families. If they were sailing at night they would use celestial navigation techniques and plot a course by the stars in order to arrive in the right vicinity. When the fishermen arrived at the fishing grounds they would cast their nets and hope for the best.

Modern fishing, however, is very different. Huge trawlers, capable of travelling enormous distances and processing the fish on board, are also technology-rich, using high-tech navigation systems and GPS. Although shipbuilding technology helped, what really transformed fishing into the lucrative industry we see today was access to relevant information that allowed fisherman to know where they were on the ocean, where the fish were, where they would be tomorrow and when to cast their nets for maximum yield. Fishing has used KPIs to improve revenue and performance for centuries, and businesses must do the same if they are to prosper in an increasingly competitive world.

Just as GPS helps fishermen to navigate the ocean and find the fish in enough numbers to make money and be successful, KPIs, if used effectively, can help business leaders navigate the often treacherous waters of business to make better evidence-based decisions and implement their chosen strategy successfully.

Centuries or even decades ago an abundance of fish made success possible regardless of navigation tools. But that is no longer the case. And the same is true for business. Business must also go further – not just physically to new markets and territories opened up by globalisation but they must go further across the board including improved customer experience, quality control and efficiency. KPIs make that possible because they shine a light into the business, letting you see what’s really happening.

Businesses need a way to assess where they are and whether they are on or off course against their strategy. They need to be able to correct quickly and adapt to the changing conditions of the market. The days where good enough was good enough and competition was minimal so everyone prospered regardless of quality or customer satisfaction are long gone. In the years following WWII for example countries needed to re-build so there was often no competition and quality was poor but it was better than nothing. Hopefully those days will never come again. If you want to succeed in a fiercely competitive market you need a way to measure progress (or otherwise) in real time not just after the fact. If your business doesn’t have or use the right KPIs then, like the fisherman of old, you are effectively casting your nets and hoping for the best.

The Datafication of our World

The pressure to identify and perfect business navigation tools is only going to intensify as we get more and more access to more and more data. As in the previous section, the fishing analogy is useful in understanding the implications of the datafication of our world. If a fisherman is competing for fish in a lake, the information he needs is finite and restricted to information about the lake. But once he goes to sea the amount of possible data he could or should have access to increases exponentially.

Most modern businesses compete globally. Within those businesses and within those markets the amount of information we now have access to is truly mind-boggling. The massive uptake of social media, smart technology and quantum leaps in computer storage and computer power collectively means that we are now generating more information and more data than ever before. It is said that we are now producing five exabytes or billion gigabytes of data every two days! Behind closed doors many business leaders are already stressed about the amount of data they probably have in their business but don’t have adequate or meaningful access to and that situation is only going to get worse if we don’t start managing that data effectively.

When you identify and use the right KPIs for your business you can cut through the oceans of data that exists, could exist or should exist and get timely access to the nuggets of wisdom that you need to make better decisions and improve performance.

Without the right KPIs to navigate the swelling oceans of data that already exist and is increasing all the time you can so easily find yourself all at sea.

KPIs as vital decision support tools

When used effectively, KPIs provide the evidence and information required to make better, faster decisions without stress. Business experience matters, and clearly you sometimes need to make decisions when all the facts are not available but KPIs provide a vital decision support tool across the business that can reduce those occasions and minimise error and anxiety.

Using KPIs to answer your most critical business questions

Your business needs KPIs because they help to answer your most critical business questions. Depending on your strategy you will have a series of important business questions that you need to answer in order to work out if your business is doing what it needs to do to achieve that strategy or is moving away from it or going off course.

Once you know what those questions are you can work out what information you need in order to answer them. Once you know the information you need you can design the right KPI that will deliver that answer and use the KPI to guide the strategy.

Essentially KPIs allow you to measure performance accurately, which in turn allows you to:

Learn from past outcomes and improve results in the futureReport externally and demonstrate complianceFocus effort and monitor output

Using KPIs to learn and improve performance

When you have access to the information you need you are better able to make better, more informed decisions. These allow you to learn what’s working and not working quickly, so you can improve performance.

KPIs also provide the real-world evidence that can be used to challenge strategic assumptions and ensure the business is always heading in the right direction.

Using KPIs to report externally and demonstrate compliance

KPIs can also be used to inform external stakeholders and comply with external reporting regulations and information requests.

When measuring for these purposes, any reports and associated indicators can be produced on a compulsory basis such as for annual financial statements, accounts, or performance reports for regulators or they can be produced on a voluntary basis such as environmental impact reports.

Using KPIs to focus effort and monitor output

KPIs can also be used to focus employee’s behavior and effort and monitor their output. Although this may sound a little Machiavellian, KPIs can be extremely positive in opening dialogue up and down the company. Say you have a manager who is hell-bent on a particular approach even though his staff are not supportive – KPIs allow both sides to see the facts and make decisions about where to focus effort based on evidence, not assumption or opinion. Equally, if a member of your team is not pulling his or her weight then KPIs provide feedback on any unwanted variance between achievements and goals. It’s not opinion or assumption: the KPI tells the story, which tends to defuse potentially difficult situations and allows both parties to move straight into solution mode.

The word indicator is deliberate – KPIs are not targets to pin reward and punishment on. They are indicators, guides that can help a business or individual know where they are in relation to where they should be.

Making KPIs Work in Your Business

Although the term KPI is common, the effective application and use of KPIs in business is not.

What normally happens is that there will be a KPI champion who will struggle to engage the rest of the group about the relevance of KPIs. Even if by some miracle that individual does garner support, if he or she leaves the whole KPI framework quietly disappears and everyone goes back to business as usual.

Alternatively too many KPIs are introduced without any real regard for how the information will be used. Over time the people collecting the data become disillusioned because nothing comes of their KPI collection and reporting. And when people are already busy it won’t take long for the KPIs to fall by the wayside. See Chapter 2 for more on common errors in implementing KPIs.

This chapter is designed to give you quick overview of KPIs, how to decide on the right ones and organise them for maximum impact. as well as a sneak a peek at a few. For more detail on organising KPIs, check out Chapter 4.

Create a KPI culture

KPIs are incredibly effective navigation tools that can inform decision making and give you almost real-time access to what’s actually happening in your business. However, they won’t ever deliver on that promise until you take steps to shift the culture inside your business to embrace KPIs and see them for a positive, inclusive and collaborative way to understand and improve performance – without finger pointing and blame.

You don’t need to instigate radical cultural change programs, though – the necessary culture shifts will come about naturally. The worst thing you can do when it comes to KPIs is to announce their arrival. Instead, initiate a subtle approach where you start with a few key KPIs, explain their relevance and what the information is going to allow you to do. Collect that data, and most importantly use the data to make new choices. When people begin to see that the data you are collecting is being used in the decision-making process and to inform choices instead of being jammed in a folder and forgotten about then the culture will change.

When that change begins, lock it in through regular and semi-regular KPI-focused meetings. Chapter 3 gives you more on creating an evidence-based culture in your business.

Decide on the right KPI framework

As you will see as you read the rest of this book, there are a huge number of KPIs to choose from. Even the ones mentioned in this book represent a handful of the possible KPIs that you could theoretically choose from.

Getting KPIs right is as much about how you choose and present them as it is about the ones you choose. You need to present he KPIs in context, otherwise they are just numbers and data. Most decision makers are already busy; they don’t want to have to wade through mountains of information to scratch out the insights. They want to be able to get the information they need in a way that makes sense to them already.

As a result the best way to present your KPIs is to use an existing or familiar performance framework. For example if your business already uses the Balanced Scorecard (BSC) or Six Sigma then people inside the business are already familiar with that methodology. Adding KPIs around the already familiar framework makes it much more likely that mangers and decision makers will use the KPIs and derive meaningful benefit from them very quickly.

There is absolutely no point re-inventing the wheel so wherever possible, piggy back on an existing framework – be that a project management framework, quality framework or the BSC.

Develop the right KPIs

So which KPIs should you use? Well that depends on what you need to know. Too often people get excited about KPIs and go overboard. So they go from zero to hero and wonder why KPIs don’t stick.

If you currently don’t use any KPIs, or measure a few but don’t really use them to inform strategy and decision making then plucking the sexiest 50 out of a KPI book – even this one – is going to fail.

You need to start with the questions you most need answers to in order to improve performance. If you are worried about staff turnover then you need to know the answer to ‘How many people are leaving the company?’ But that alone won’t really tell you if you have a problem or not. You may want to revise that question to, ‘How many of the people leaving the company do you regret leaving?’ If you are only losing people you want to lose then you need to tighten up your recruitment process to ensure you don’t recruit those people in the first place. If you are losing vital members of your team then you need to find out why and do all you can to rectify the problem.

The guiding principle for successful KPI selection is – only measure what matters. And in this context that means only measure what you need to measure in order to deliver your strategic objectives, improve performance and stay on track. Chapter 5 gives you the meat on developing effective KPIs.

Analyse and report

Even once you’ve decided on the right KPIs for you and they all service a purpose and help you answer performance critical questions you need to analyse the KPIs and make sure the people that need the information get the information in a way that makes sense to them.

Too often companies will decide to use KPIs and collect them all together in a big fat folder or distribute all the KPIs to all the managers and decision makers. The resulting document is often overwhelming so no one uses the information.

Remember KPIs are navigation tools. They need to be put in context and they need to be turned into insights that can direct strategy and decision making. KPIs also allow decision makers to identify and test assumptions that can improve performance. Ultimately a KPI is only useful if it’s used in the course of normal business operations. And they are only useful if the analysis reaches the right people. Chapter 6 tells you how to turn KPIs into business insights, and Chapter 7 shows you how to communicate them effectively.

Assessing Your Financial KPIs

Financial KPIs are the most common type of KPI in most businesses. Whether a business is considered a success or not is largely measured by financial performance which is measured via a number of financial KPIs.

Revenue and profit

Business exists primarily to make money – that’s the objective. There may be other objectives but commercial organisations are driven to create revenue and more importantly profit.

It’s essential therefore that you understand the different types of profit – gross, net and operating and how to measure the various margins so you can figure out how much money is really being made by the business.

Revenue is considered a key metric for success and is especially important to investors or potential investors. Chapter 7 has the inside track on developing KPIs for revenue and profit.

Liquidity and cash flow

The biggest reason for business failure is not lack of sales, poor products or bad management. Most of the time businesses fail because they simply run out of money. They don’t keep an eye on cash flow and liquidity and underestimate the inflows and outflows of cash from the business.

In any business cash is king. The more cash you have or the more cash you have access to quickly (liquidity), the more flexibility you have in how you run and grow the business. A cash-rich business doesn’t have to borrow money or attract investors to grow. Debt finance and equity finance can be expensive options and dilute the control of the business, so knowing how much cash you have today and how much you will have tomorrow is critical for long term survival and growth. Chapter 8 introduces you to the key KPIs for liquidity and cash flow.

Shareholder value

In business, the shareholders wear the trousers. Whether they are the owners of a privately-owned business or the shareholders in a publicly-owned company, the owners are watching and they want to know how their investment is doing.

Shareholder KPIs allow owners, managers and investors to know how attractive a company is and how much value they can expect.

For publicly-listed companies, shareholder metrics are critical. If a share price is too low but the earnings are good then it leaves the company open to a takeover. Competition is harsh in the stock market and shareholders will go where they believe they will get the best return – you need to know whether that’s you or not. Chapter 9 tells you what you need to know about shareholder and value-added KPIs.

Financial efficiency

Profit is a direct result of how efficiently you run your business. How well do you use the resources you have? What sort of returns are you getting on the capital you employ? Are your assets working hard enough? These are just some of the questions you need to know the answer to. Chapter 10 shows you how to get a handle on financial efficiency.

Assessing Your Customer KPIs

Your business isn’t a business without customers. If you want to grow and prosper moving forward you need to know what your customers think about you and you need to know how about your market share.

Customer satisfaction and loyalty

Competition is fierce in most markets. Customers for the most part are much more discerning than they used to be. If you don’t give them what they want when they want it then they are much more likely to jump ship and buy from your competitor.

Business has recognised the importance of at least trying to keep their customers happy for a long time but research has demonstrated that happy customers don’t necessarily translate into loyal customers. Plus, just because a customer is loyal doesn’t always mean that customer is profitable. You need to be able to classify your customers so you know who is making you money and who is costing you money.

You need to find the raving fans and encourage them to spread the word still further but you can’t do that unless you implement some meaningful customer focused KPIs. Chapter 11 shows you how to measure customer satisfaction, and how to enhance your chances of keeping those customers loyal.

Market share

Do you currently know much about your market? Is it shrinking or expanding? How do your products and services fit into that market? Do you know your market share? All of these questions are important if you are to stay relevant to your customers and adapt to changing demands. Chapter 12 takes you through what you need to do to measure your market and your place in it.

Assessing Your Operational KPIs

How your business produces its products and services also have a very clear and direct link to revenue, profit and growth. Do you know how operationally efficient your projects and processes are? Are you aware of how much waste is built into your processes? Do you know how many defective products you produce and why? The answers to these questions are critical as you seek to minimise wasted time, resources and customer dissatisfaction.

Project performance

Most strategic objectives are broken down into projects to ensure that the strategy is executed. Without these projects strategic objectives can easily remain aloof.

It makes sense therefore that you wrap some key KPIs around those projects to ensure that the deliver what they were instigated to deliver. Without clear milestones and measurement protocols projects can easily fizzle out and come to nothing.

If a project is critical to the overall implementation of the corporate strategy then you need to measure performance using key project KPIs. Chapter 13 has the essentials on measuring project performance.

Efficiency and quality

There are two ways to create more profit – sell more products or make your products more efficiently. It makes sense to focus on both sides of the equation and that means understanding what is happening in your business on a daily basis and how your products or services reach your customers.

Do you know what level of quality your customers expect? It may be that you have built in levels of quality that are commercially irrelevant or you may be missing the mark too often. Whichever it is you need to know. Chapter 15 gives you what you need to handle efficiency and quality control.

IT

Information Technology (IT) is deeply embedded into most businesses – whether that is through accounts software, customer management software or the ordering system. There is no escaping the reach and importance of IT.

Like most things in life IT is a double-edged sword. On one hand it provides huge benefits in efficiency, data analysis and communication. At the same time the omnipotence of IT leaves us vulnerable to threats. Most businesses are hugely dependant on IT, and any failings in systems can cause havoc.

IT is an important business area that requires monitoring and the use of KPIs. Chapter 16 helps you out with assessing IT performance.

Assessing Your Employee KPIs

Your people are your greatest asset. For most businesses employees also represent the biggest cost. It makes sense therefore to know what’s happening with your staff. Are they leaving in unusual numbers? Are they are productive as you would like them to be? Do you even know?

Employee engagement

There is a strong, recognised link between happy employees and happy customers, and another one between happy customers and profit. After all, if employees are happy they are much more likely to interact with customers in a positive, helpful manner. When customers experience pride and loyalty from the employees of a business they are much more likely to believe and trust that business.

Making sure your people are engaged and satisfied therefore makes a lot of commercial sense. Chapter 17 takes you through the metrics you need to understand your business’s most important resource – its people.

Talent retention

We are experiencing an ongoing war for talent. Every business needs talent to execute its strategy, and competition to secure that talent is fierce.

Whether you win or lose the war often comes down to recruitment and training. How successful are you at attracting that talent in the first place? And once you have the talent how successful are you are keeping it? Talented individuals want to know that they are going to be developed further and they often expect high quality training once they are in the position so they can improve and develop.

Wrapping some KPIs around recruitment and training can help you answer these and other important HR questions. Chapter 18 covers those KPIs.

Chapter 2

Types, Targets and KPI Mistakes

In This Chapter

Understanding the different types of KPIs

Setting the right targets

Identifying the most common errors

Successfully implementing KPIs involves more than meets the eye. Often the indicators themselves can be quite straightforward, so it’s easy to under-estimate their relevance. This chapter is all about context, and making sure that you fully appreciate the various types of KPIs, and what they can and can’t measure, as well as looking at how many KPIs you should have, how to set suitable KPI targets and the top three KPI mistakes to watch out for.

Understanding that KPIs can be Strategic or Operational

KPIs can be used to measure strategic objectives, that is, monitoring where you are now in relation to where you want to be in the future or to measure operational objectives, that is tools for monitoring operational performance on a daily basis. But the two outcomes are not the same – they require different types of KPIs.

Operational KPIs seek to get closer and closer to ‘real time’ measurement, so you can assess what’s actually happening in the business on an hourly, daily, weekly and monthly basis. These insights help you to do things better. They offer up important information about where systems, processes or people are falling behind or veering off course so that you can take corrective action quickly, solving the issue before it escalates into a full-blown problem. This real-time performance monitoring is not required for strategic measurement.

You don’t need to monitor strategic measures day-by-day, and certainly not hour-by-hour. Strategic KPIs are more about monitoring progress or trends toward a stated destination, and as your strategy shouldn’t change that much, nor should the set of KPIs you use to measure progress toward that stated destination. It’s important to monitor the same KPIs over time so you can get an accurate picture of progress.

Strategic and operational KPIs are equally important – they just provide different information for different purposes. However, a disconnect often exists between the metrics a company uses at a strategic, board level and those indicators people use on the shop floor to measure performance. For KPIs to yield all their promise strategic and operational KPIs must be linked together so that everyone in the business can see the connection between what they do and what the business achieves.

To get the most from your KPIs, you need to follow four main steps:

Use KPIs to verify that your chosen strategy is valid.Create high level strategic KPIs to help you establish whether you are on- or off-course against that strategy.Create a performance framework (more on that in Chapter 4) to measure all the critical elements that will deliver on that strategyAdd operational KPIs which will allow you to measure those areas in real time.

The pear tree analogy

Think of linking strategic and operational KPIs as being like a pear tree. The pears on the tree are the product or service you offer to your customers. Your product or service is the visible output of your business in the same way as the pear is the visible output of the pear tree. But the pear didn’t arrive on the tree by magic: It is the product of a visible and invisible network of connections and interconnections, just like your product or service. The major branches of the tree represent the various departments within a business – each with their own operational objectives that make the pears possible.