How to Measure Performance in any Business
There is a well-known way of measuring the performance of any business in regards to its objectives. It is done by implementing Key Performance Indicators or KPIs which allow any manager to monitor and measure how different areas are performing. This strategy is also used to establish values that indicate where adjustments have to be made in order to accomplish objectives or specific goals.
KPIs are used at different levels and in multiple areas, in order to keep track of performance and evaluate the success of each area in reaching the established targets. To be effective, key performance indicators must be established in the right places with a clear objective in mind. The overall performance of the company can be assessed by high level KPIs or by using benchmarks. However, the most effective use of KPIs is, when established to monitor and/or measure processes of company departments or specific areas.
What makes Key Performance Indicators effective?
A key performance indicator can only be effective if the objectives of the company are clear. Also, if what the KPIs indicate needs to be done is not performed, then it is to no use. Key performance indicators are only as good as the action that they encourage. So if nothing is done to improve what the indicator shows is needed, then the problem is not in the KPI.
Very often, what happens is that a company adopts a set of key performance indicators which provide information on their performance, but nothing is done with that information, except to put it into reports to show at meetings. Then they wonder why the KPIs are not working to improve their performance. If nothing is done with the information KPIs provide, there cannot be any positive changes.
Key performance indicators are a communication tool, if implemented properly, they should provide concise, relevant and clear information, which can be understood and acted upon to improve performance if needed. If set up this way, key performance indicators are an invaluable tool at the disposal of any business.
How to develop a strategy for implementing Key Performance Indicators?
The first thing that any team should know before formulating key performance indicators is the overall objective of the company. Once this is clear, then it is important to have an excellent understanding of organizational objectives and benchmarks. These are the basics which every team must know in order to be able to set proper KPIs.
Once the basics are covered, then the team must also determine how the organization plans on achieving its objectives and who will be in charge of receiving and acting on the information obtained from the key performance indicators. This part of the process involves, department heads, managers and analysts getting together to brainstorm and provide ideas and feedback. During this stage, the team will discover what processes must be measured and who to share the information with.
How to make KPIs relevant to a specific business?
The very best way to adapt key performance indicators to a specific organizational situation and to evaluate them is to use the SMART criteria. This acronym stands for specific, measurable, attainable, relevant and time specific. This is to be understood in the following way:
- Your objective must be SPECIFIC.
- Your KPIs should be able to MEASURE your progress towards achieving your objective.
- That objective must be really ATTAINABLE not just something you wish or hope to reach.
- It must also be RELEVANT to the overall objectives of the organization or company.
- You need a clear TIMEFRAME for achieving the objective or goal.
In order to successfully adapt key performance indicators to a specific business, they must be structured and adopted based on a clear set of criteria and specific organizational objectives. They also must be continuously evaluated and reevaluated, in order to maintain their relevance to the business and its changing environment.
Starting out with clear and precise information about the goals of the institution and its key performance indicators strategy, is extremely important for its success.
Two great areas to implement the use of KPIs in any business are Sales and Marketing. This will allow the business to know what is effective and what isn`t as far as increasing its revenues, and where to implement changes to get the most out of its marketing budget.
By: H. A. Rivera
Latin American Markets Expert
Watch this video where Erica Olsen, COO and Co-Founder of OnStrategy, explains what metrics to watch within your company and how to use them in your reporting to ensure that your strategic plan stays on track.