When Key Performance Indicators or KPIs are mentioned to business owners the response can be quite varied. Some are indifferent or curious as they haven't heard of them before. They want to learn about them and how they could help drive improvement within their business. Some get excited as they have heard of KPIs previously but have never found the time to implement or monitor them. For others their eyes glaze over, often because it is their honest opinion that KPIs are either time intensive, that their time could be better spent on other business tasks, or that they promote a bad working environment.
So which response is right? Are KPIs a help or a hindrance to a business?
The answer is simple – setting the right KPIs for your business, and implementing and monitoring them in an effective way will help improve efficiencies and the financial success of your business. They can also be one of the most important gifts you can give to your staff to help them improve and thrive. However, setting KPIs that are not suited to your business, or the use of poorly implemented or monitored KPIs won't result in improvement – and who wants to spend time on something in their business that doesn't have a positive impact?
This is why it is so important to go through the correct process when setting, implementing and monitoring KPIs. Here are some key points to remember when considering KPIs for your business.
- You need to first analyse your business. What areas are doing well and what needs improvement? This can involve financial analysis but also consideration of things like workplace culture, wastage, staff productivity, customer satisfaction, brand awareness etc. Some of these might be hard to measure but they are equally important as (and contribute to) the financial performance of your business. You might need to conduct staff surveys (possibly anonymously), ask for client feedback (sometimes a prize can entice customer engagement) or perform detailed analysis of information from your POS or accounting software.
- KPIs can then be used to overcome issues identified, but also to maintain those things that are working well for your business. If you spend all of your time fixing the issues you run the risk of shifting staff focus solely to problems – make sure you measure and celebrate the positives too!
- Once you have identified the issues you want to resolve, or the successes you want to maintain, determine what would indicate improvement or success, and how you can measure the performance of these indicators. You need to be able to source information on these indicators easily and regularly to monitor success.
For example, you might have noticed wage costs are high in comparison to industry peers and relative turnover. This could suggest that staff productivity is low or that you pay staff too much. You could review wages and set thresholds for new hires, or you determine how to best measure staff productivity in your business.
You might notice that lots of staff are leaving and you are always training new hires. This might be because staff satisfaction or morale is low. Measuring staff satisfaction can be done by conducting and analysing regular staff surveys, reviewing staff turnover, or even having regular one on one conversations with staff and assessing issues raised.
- Setting KPIs alone won't always work – you need to develop actions that will drive the improvement of the KPIs. For example, setting productivity targets and measuring them regularly might be the push your staff need to work harder. Sometimes though, there might be problems causing the lack of productivity (wrong person for the role, old technology, poor working conditions, wrong team mix). Similarly staff satisfaction won't be improved simply by meeting with them regularly. You need to determine why they are unhappy, analyse the results of surveys or discussions, and determine what actions you can take to resolve concerns.
- Don't set too many KPIs – target areas that will have the biggest impact on your business and focus on these first. Too many KPIs become too time intensive to monitor and often get forgotten.
- All business owners should have a strategy or plan for their business. It is important that you choose some KPIs that align with your business plan as they will help drive your success in achieving the goals you have set.
- Linking KPIs to incentives can work at times, but it can also result in a "me" focus instead of a "team" focus, or can entice staff to manipulate data or hours to get the desired outcome. The true purpose of a KPI is to clearly set and articulate direction for the business and staff, not to create competition or bad behaviour.
- As a business owner you need to be involved in creating the KPIs for your business. If you don't have involvement in the KPI decision making process, you won't feel ownership of the KPIs created. If you don't feel ownership you won't use them.
- Talk to your staff about the business KPIs, why they are important and what they are being used for. It is important that you get positive involvement from your staff and that they feel informed.
- Analyse the KPIs regularly, don't set them and forget them. This doesn't mean you run the numbers and summarise them in a table. You need to get the data, analyse it and determine what is working and what is not. KPIs are meant to create action, not just a discussion point at your weekly meeting.
- Update your KPIs as your business changes or as new issues arise. A regular review of your KPIs (annually) should be performed to ensure that they are still relevant for your business and worth the time involved in measuring them.
If you would like to discuss your business and KPIs please feel free to contact
Jenna van Nierop at Smith Thornton on (08) 9842 5510.