What are Key Performance Indicators? What they should entail? How do you determine which to track? How often if ever you should change them?
It may be difficult to answer all these questions in one blog. Let’s get started and perhaps extend our discussion to another blog if needed.
If you’re looking for information like this one recommendation to consider: Purchase Verne Harnish’s new book Scaling Up on Positioning Systems website or through Amazon. It’s full of not only examples of Key Performance Indicators, but stories about companies that have developed, and demonstrated the impact these metrics have on a business. A number of my examples are taken from the book as well as my experience working with my customers with the Rockefeller Habits tools.
I recall a quote from Michael Gerber, E-Myth Revisited author when I started as an E-myth coach, “You can’t manage what you don’t measure, and what you don’t measure you don’t understand.”
In June last year I met with a prospect to discuss the Rockefeller Habits principles and developing a working relationship. Two of the three members of the leadership team chose to be solidly against moving forward. At the time their business was operating at nearly -$300K in profit for the year. There reasoning, “How could they afford a coaching investment when they weren’t making money now?”
In many cases business can be counter intuitive. If you keep doing the same things you’ve been doing, what are you going to get?
What you’ve always been getting.
Fortunately the CEO determined they would work with me for 3 months with Positioning Systems Value Guarantee to determine if we couldn’t help.
By the end of the two days of introduction and Rockefeller Habits indoctrination to the Four Decisions the other two were on board! They began to realize how limited they’d been in quantifying their business. We made our ONE THING profit. The company’s year ends in November. In that short time the leadership team reversed their loss to a net profit of $35K. The number would have been more than double, without their accountant reducing this through proper accounting practice to limit tax ramifications.
How did they do this in just 5 months?
Key Performance Indicators that focused on their One Thing. If you’ve not recognized the power of Pearson’s Law please let me reinforce it again. To gain dramatic performance increases remember: "When performance is measured, performance improves. When performance is measured and reported back, the rate of improvement accelerates." -Karl Pearson, Pearson’s Law Thomas S. Monson, author
This company began to watch their margins closely, they found ways to reduce their account receivables by getting one customer with a significant purchase to pay cash in advance for a discount, monitored expenses, and when a key member of their team unexpectedly resigned in November they determined they didn’t need to replace him.
All these efforts collectively work, yet without determine which key indicators to monitor and report on weekly they would not have made the progress they achieved. This year we’re projecting a profit of close to the loss they had last June. There’s room to grow and achieve even more.
As you begin to monitor the Key Performance Indicators in your business you’re eyes are open to new opportunities. Quarterly and Annually we review the KPI’s and ask which should we keep, stop or start to ensure the right indicators that impact the business are always being measured.
One of the essential for achieving success with KPI’s is making sure you have two times the number of leading to lagging indicators. Why? -
The late business consultant W. Edwards Deming stated that the fundamental job of a leader is prediction. The heart of a leader’s ability to predict is data. But leaders also need plain old human-gathered intelligence to get a gut feel for the market and what is happening in the company, so that they can make the right decisions. Talking weekly with customers and employees and then discussing what’s been learned at the executive huddle is critical. And engaging all of your employees in data collection, with a middle-management team leading them, spreads out the work so the senior team doesn’t get buried.
You need both qualitative and quantitative data and metrics. One of my customers, a car wash/convenience store company could accurately predict car wash locations profitability increases through weekly tracking of customers NPS scores.
From Scaling Up: Gazelles’ Growth Tools are replete with boxes asking you to pick Key Performance Indicators (KPIs) and Outcomes. We start with the functions and processes driving the business, then push for the company to set goals, delineate measurable Brand Promises, and pick Critical Numbers on the One-Page Strategic Plan, including KPIs for both the People and Process sides of the business so the leadership team has a balanced view of performance. The challenge is choosing metrics that matter, meaning those that measure what’s important to customers, and provide sufficient insight to help both the leadership team and all employees see problems and opportunities in time to react. However, quantitative metrics alone provide an incomplete view. Qualitative insights from conversations with the market and observations of customers and competitors fill out the data set needed to guide decisions. Input from advisors, experts, and “the crowd” also contribute. Piling all of this data into computers and our brains and engaging in healthy, frequent debate helps leaders make decisions — regarding hiring, product, marketing, etc. — with a high degree of confidence
Data analysis must be augmented with plain old human intelligence-gathering. For all the big data computing power that Wal-Mart Stores Inc. possesses, it sends teams from the Bentonville, Arkansas, headquarters out to stores to gather insight Monday through Thursday, bringing them back Thursday night. On Friday morning, its executives pore over all the quantitative data from its computer systems, along with the qualitative intelligence picked up from talking with customers, meeting with employees, and shopping at competitors’ stores during the week. David Glass, former CEO of Wal-Mart and now owner and CEO of the Kansas City Royals baseball team, recalls this routine well. “We would decide what corrective action we wanted to take [Friday morning],” he says. “And by noon on Saturday, we had all our corrections in place. Our competitors, for the most part, got their sales results on Monday for the prior week. Now they’re 10 days behind, and we’ve already made corrections.”
It’s this “learn fast; act fast” cycle that put Wal-Mart ahead of the competition. And as this example demonstrates, you don’t have to be months or even weeks ahead, just 10 days ahead for more than 50 years. Wal-Mart’s routine is not just for large companies. Its habit of gathering data on employees, customers, and the competition started in 1962 with a 6 a.m. meeting every Saturday at Sam Walton’s first store. “Learn fast; act fast.”
1. Senior leaders need to be in the market 80% of the week, either figuratively or literally.
2. This routine must start on day one and continue through half a trillion in revenue! Speed is the key.
Bring Every Brain Into the Game Walton, back in 1962, saw the value of meeting with employees weekly to seek their ideas for making the business better, which was quite progressive at the time. Without a formal routine to prompt members of your team to share their perspectives, you risk having those ideas walk out the door at the end of every day. Worse yet, your workers miss an opportunity to contribute and feel good about it.
I’ve included the excerpts from Scaling Up both to help you understand that KPI’s aren’t just quantitative numbers, they’re qualitative and to help you see the enormous value Scaling Up can have for your business. We’ll explore more why these are important and why so many companies start doing this and then fail to continue next blog.