Why Your KPIs Aren’t Working.
What KPIs (Key Performance Inputs) Drive the KPIs (Key Performance Indicators) in Your Business?
KEY PERFORMANCE INDICATORS
A lot of businesses focus on Key Performance Indicators, KPIs. The main areas that you and your team determine to be the most critical to the success of your business.
Typically, you establish a quarterly goal for the company. Next, you establish goals in certain functional areas that support the overall goals. If the company’s goal is to increase gross margin by 5%, the goals of the functional areas are designed to have a positive impact on gross margin.
Example of Functional Areas Supporting Overall Company Goal.
In this example, the company’s goal is to increase its gross margin by 5%.
The supply chain team works on reducing the product and inbound shipping costs.
The marketing team increases the selling price.
The finance team works on reducing credit card processing fees.
And so on throughout the operation.
Your KPIs are set at the company level and they trickle down to the various operational areas.
Tracking and Posting Results for Various Metrics.
You track and post results weekly for the established KPIs to show how the metric is moving. You use this to determine the effectiveness of your teams ability to affect the desired change. How are you tracking towards reaching your goal of a 5% increase in gross margin?
Why the Needle Isn’t Moving.
Week after week you focus on tracking the key performance indicators. But, the needle isn’t moving. Here’s why:
The focus has been on establishing what you want to improve and what areas you need to focus on to make the improvement, but not on the actual detailed work required to make it all happen.
The KPI itself, like in the gross margin example, is a rearview mirror. You and your team run around taking actions hoping that the metric moves towards your goal. All of the time is spent taking various actions and then tracking the metric.
However, success lies in tracking the specific inputs of activity that you believe will most materially impact the KPI.
Don’t only track the KPI. Rather, the objective should be to track the Key Performance Indicator (ie. gross margin growth by 5%), AND the specific inputs you need to work on to achieve your goals. I call these the KPIs, Key Performance Inputs.
KEY PERFORMANCE INPUTS
You’ve established your KPI of a 5% increase in gross margin. Now you need to establish and track your key inputs. And that is hard work. While you likely have a good idea of where the work needs to be done, you will really need to dig deeply into the activities and timelines required to accomplish what you set out to do.
Once defined, the key inputs will translate into projects that are tightly defined and managed.
Example of How KPIs Drive KPIs.
In this example, the KPI (Indicator) is:
Grow the email marketing channel revenue by 10% in the first quarter.
The KPIs (Inputs) are:
Add 20% more email addresses to the database
Purchase 2-3 lists
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Within the bullets above, each specific sub-bullet point requires its own project plan with dates, milestones, collaborators, and so on. There are seven inputs grouped into three categories. You may come up with even more actions you can take in addition to the above. Yet, it’s important not to take on too many activities simultaneously. Because the more you take on, the more thinly spread you are, and the higher the likelihood of not meeting each specific project goal.
You don’t want to simply add a bunch of actions to a list that you think could increase the email marketing channel revenue by 10%. Then, at the end of the quarter, you look back and ask how did we do? Did we get to all of our ideas? Did we increase the channel?
Instead, have the vision and discipline of picking the top 5-10 key inputs and THAT’s ALL. Then you can track your progress and the results of these key inputs as you go to see if you are moving the needle.
You can always focus on different inputs during the next quarter. But, you need to control the scope so you can truly affect things.
Tracking KPIs (Inputs).
Each week at your KPI (Inputs) meeting, you should spend a moment looking at the top-level KPI (Indicator), which is growing email revenue by 10% in this example. However, the bulk of your time spent at the meeting should surround the details of each specific project (the sub-bullet points) and their status. Such meetings often turn into troubleshooting sessions. The project plans may be fluid, but you should be unwavering in the results you are after.
Let’s say you spoke with a list broker who could not deliver the type of email list you need to buy. You will need to reach out to more brokers. You will need to determine quickly if it’s even possible to obtain the type of list you need. If not, you need to stop that project (using a list broker to get new emails) and redirect your energy towards the other ongoing key inputs.
Seeing Results from KPIs (Inputs) is Very Satisfying.
Results from these mini projects are invigorating and motivating. The details of the key input projects are clearly defined and actionable. Which leads to more satisfaction and better results as compared to a more vague direction. Imagine starting your day knowing exactly what work you need to do and having the opportunity to brainstorm any barriers with the team. As opposed to going into work every day with the generic “get better at email” directive.
Tracking KPIs (Inputs) Is the Discipline Required.
You can spend all your time defining your goals, deciding where you want to be, and using fancy business lingo. But, at the end of the day, the devil is in the details. You need to break it down to the actions required on a weekly or sometimes daily basis and consistently check in on your progress. You’ll find your teams will build strength in overcoming barriers and that’s really what results are all about. Having the discipline to track and focus on the actionable items will help you reach your company-wide KPIs (Indicators).