KPIs or Key Performance Indicators are a method of distilling the activity of a company into a few specific measures that allow managers and directors to know what is going on.
Whilst they may seem applicable to larger businesses in fact they can be helpful for businesses of all types large and small.
A KPI is a standard measure of something that is really important to the profitability and viability of a business but also needs to be something that directors can take action on.
It’s unlikely for instance that rent will be a KPI for a shop because it will be unchanging and unchangeable because the business will be locked into a lease.
Instead a company will look at aspects that directly affect profitability yet are a key driver. A retail owner might choose to measure sales per square metre as a KPI for example as a way of measuring whether they are using their expensive space efficiently.
So how do KPIs actually help a company become more profitable and efficient?
The first thing that they do is to concentrate the minds of the users. If they are communicated properly and taken seriously by management then it almost becomes automatic that staff work towards improving the position. This is why it’s a good idea to monitor and report regularly to all concerned.
Having already done work to find out what is important to the business and then distilled this into KPIs what managers then find is that the business becomes much more focused on the important things that make a real difference to the organisation.
KPI’s also allow managers to know what things are key to the company and to direct their resource accordingly. Having this clarity means that instead of concentrating on everything they can ensure that the resources they have at their disposal can be best used.
KPIs help profitability through a financial focus but it would be wrong to think that they are purely used for monetary measures. In fact they can be used (and should be used) for any measurable aspect that is important to the business.
If people are important to a company then they may wish to measure staff engagement, staff turnover or the responses to staff surveys. Designing a KPI that encapsulates these will allow the firm to enact policies that increase engagement of vital staff and by extension improves the customer experience.
Engagement is another thing that is increased by using and communicating a good set of KPIs. Staff report that they feel more included and understand the business more and that their opinions are valued.
An organisation that has a strategic plan can find that measuring progress towards the goals set will galvanise people into making a real difference. Well designed KPIs will align to the strategic aims of the business and will naturally help the company achieve its goals.
For very new businesses it may seem like an overkill to start measuring information in this way and so reporting gains a bit of a bad reputation. Reporting on a small number of easily understandable items allows the firm to become comfortable with reporting its performance and helps to ease managers into the skills they’ll need in a bigger firm.