RETHINK YOUR KPI's

Experts tell us that between 60 percent and 90 percent of all strategic initiatives fail to achieve their objectives. So at the end of every month and quarter and year, your company probably generates a balance sheet and a profit and loss statement. However, no matter how these numbers are, they represent a look in the rear view mirror.  So, how can you get your people focused on the numbers that are truly important to move your business forward?

Numerical targets and Milestones

In order to establishing numerical targets, everyone should understand exactly what the number means. Yes, you can track financial results as Numerical Targets, but what most people really understand are visible, concrete things; things they could count if they chose to. You will track these numbers publicly, so select measures that you don't mind sharing. Remember that you want the people in your company to be aware of these numbers and discuss them.

These numbers will be the basis for your budgets, financial forecasts, human resource planning, and more. Budgets and forecasts should not be done until you have created your company strategy and they must be aligned to the strategic choices you have made.

The Tropical Island Test

The "Key" in Key Performance Indicators means that you concentrate on the most important measures- choose no more than five. Then give your choices the "Tropical Island Test.”  Imagine that you're vacationing on a distant tropical island. It's lovely there, but it's very remote and communications are severely limited. In fact, you can only receive a single five-line text message per week to let you know how things are going at the company. Your challenge right now is to identify the five Key Performance Indicators that will predict and drive the success of your current business model.

Start with the minimum acceptable level.  The minimum acceptable level is the level of performance where you can keep the lights on but not much more. You're not making any progress at that level. How about good performance? Now set the threshold for good performance.  This is the level of performance you need to see delivered consistently every week if your company is making progress.

Choose your Numerical Targets

Now it's time to get to work. Get your team together and do the following:

1.     Choose at least one, but no more than three Numerical Targets

2.     Make sure they are numbers that have meaning for all your people

3.     Project them over three time periods: 90 days, one year, and 2 or even 3 years

4.     Identify the person who's accountable overall for achieving those numbers

5.     Decide how you will make the targets visible.

6.     These targets and your progress should be a regular topic of interest, conversation and accountability

7.     Make these Numerical Targets noticeable and provide frequent progress updates

Now list the outcomes you are looking for- or the end result. Now ask yourself the following two questions:

1.     What is the measurable activity that if you perform enough of them, will drive the desired end result?

2.     How could you measure the quality or effectiveness of that activity?

KPIs do more than simply measure activity or effectiveness levels. They send a message to the people in your company, telling them what's important. KPIs tell your staff what you will pay attention to and what you pay attention to drives behavior. KPI’s help align individual priorities with company priorities.

Daily and/or Weekly KPIs

Choose KPIs that you can measure every day or every week if possible. If your measurement cycle is longer than a week, you don't catch problems early enough. You drive better performance with shorter measurement cycles. Shorter cycles let you spot trends earlier and spotting a problem early means you can solve it sooner. Those below-par numbers might be down for another week while we worked together to set things right, but they'd usually be back up in the fourth week.

There's another advantage to catching problems early: they're usually easier to solve. The longer a problem lives, the bigger and the nastier it gets. Tracking KPIs on a daily and weekly basis is also more engaging for your people, because it gives them the opportunity to experience the satisfaction of “winning” on a regular basis.

Now Choose Your Company KPIs

Based on what you know to be true right now, what do you expect to achieve by the end of the current year? What about the year after that? The further you project into the future, the less certain you can be, because, as we know, your current reality is always changing. Nothing is more demoralizing than displaying annual targets that bear no resemblance to the current reality.

Now it's time to get to work. Get your team together and do the following:

1.     Pick KPIs that will drive and predict the financial results of your current business model (or if you are a team manager – the numbers that drive the performance of your team)

2.     Pick KPIs that you can measure every week (or even every day), where possible

3.     Pick only the five (or fewer) KPIs that will make the biggest difference for your company (or team)

You will maximize growth and profits when:

1.     You have clear duties and KPIs for each functional role

2.     You have the right people in each role

3.     Those people concentrate on the right things

4.     They are held accountable for performance every month

Single Point Accountability

Many people can be involved, but ultimately only ONE person can be held accountable. Identify these persons by respective KPI’s and manage these numbers, and accountability to these individuals.

Conclusion:

Accountability is meaningless without consequences.