KPIs – Measuring What’s Meaningful
Consider these two questions: Are you gaining momentum or losing steam in your business right now? What actions are you taking in response?
If you can’t instantly answer those two questions, you may already be off track. But you wouldn’t be alone. More than a few companies have been in the midst of going public when they had a profit hiccup, an unexpected loss, or a major drop in revenue. Still others have been in the process of refinancing when an unforeseen event caused deep concerns for both the lenders and the owners. They were caught off guard, often at the worst possible time.
Companies can encounter catastrophes if they don’t have all the information they need.
Measuring results is like taking a fresh look at the near-term future each month. We call this responsive-results tracking, and this tool fuels anticipatory thinking and proactive problem-solving. In chapter four, we talk in depth about anticipation as a tool. But let’s find out how tracking metrics can help avoid these catastrophes and, even more important, produce profits beyond your wildest dreams.
The Whys and Hows of Tracking Metrics
Can you imagine watching a football game that didn’t have a scoreboard? Or playing a round of golf without tracking your strokes on a scorecard?
Of course not. Then why would you run a business that way?
It should come as no surprise that you’ve got to measure performance to achieve your goals. That’s the clear message of WGMGD: What gets measured gets done.
“You get what you inspect, not what you expect.” – Favorite mantra of James Arogeti, co-founder of HA+W/Aprio.
As a leader, you need performance information to make a host of business decisions. And your people want to know how they’re doing in relation to the company goals. Remember the second question that every employee wants to know: How am I doing?
To achieve your goals, you must track performance, measure the outcomes, and give your people feedback. It’s that simple.
Here are the three steps, which you can think of as the “WGMGD Formula.”
Set targets – Set target metrics for specified goals with your key people. Get everyone involved in determining what should be measured to ensure the desired results.
Track results – Track results against the target metrics. This chapter presents a number of tracking tools you can use.
Give feedback – Give regular feedback on the gap between the results and the target. Schedule appropriate meetings and create visual scoreboards that provide ongoing feedback on how results measure against desired outcomes.
Make It Effective
There’s no point in tracking if it’s not effective. If you measure the wrong things, the wrong things will get done.
It’s best to focus on positive, growth-oriented measures, like gross profit return-on-sales or gross profit return-on-investment. Instead of tracking waste reduction, make the metric (and associated goal) positive. Ex: how much good product is produced using raw inputs.
Be sure to include the progress made as well. It doesn’t do any good to measure something if people don’t know the progress that’s being made toward the goal and their contribution to it.