When we go into business, we usually have a fixed idea of our offerings and the goals we’d like to achieve. As someone who has been self-employed and the only member of staff to worry about, I always ensured that I put my customer’s best interests at heart from the moment they walked through the door till the moment they finished their course of treatments or sessions. KPIs (Key Performance Indicators) sounded far too corporate, so I didn’t give them a second thought, but the fact that I had people returning, even intermittently, when they needed and would refer people, spoke in some way of measurable KPIs. So there was something, but capturing that and applying that in terms of my business was a significant challenge.
Over the last two weeks, we have looked at the difference between the internal – Perspective and the external – Perception. In summary, we determine activities and actions based on our perspective; others then have a perception of what we want. In business, we see this in KPIs. The Leadership Team, Head Office, and the CEO decide on the set of KPIs that will show the business is doing well. Teams and the people who set the KPI then begin to focus on ensuring the KPI is met. Sounds good right? Unfortunately, this is rarely as good as it sounds. Remember what KPI stands for? By definition, is it an indication? It is not an “Actual”. Starting at the beginning, a KPI is used to track the performance of your core business processes, sales in a retail space, manufacturing efficiency of a production line, and shipping speed for a warehouse. The list is endless. If we look at a retail space for this article, what is the process, what is the goal? The goal is to sell as many products for as much above the wholesale price as possible. So we look at average sale amounts, total sales, footfall, and conversion rates (how many customers brought products). If we look at Conversion Rate as our KPI for a High Street Retailer they may want 50% of people who enter to buy something. How do you achieve that? So when we find that a store is struggling what will happen? Will we look at the store layout and product line or will we start to ask customers if we can help them more frequently? This “Can I help you”, may lead to an increase in conversion rate as customers buy something small to get rid of the pushy people, but is that helping my Total Sales or Average Sales Amount? Long term the answer is no, but my Conversion Rate is much higher than expected. The Conversion Rate has become a detractor from our business.
Are your KPI’s aligned with a greater understanding?
Your KPIs must be geared around Critical Success Factors (about four per KPI), acknowledging elements which are imperative to driving a process in the right direction and should validate the behaviours that follow. In our Retail example above, we had three KPIs, so we should have approximately 10 Critical Success Factors (CSFs) to drive them forward. CSFs do not need to be unique to a KPI; they only need to complement it. Simple customer satisfaction scoring, Repeat Custom, and Product analysis can all be used to start expanding and fleshing out your KPIs. However, the most important thing to remember in all of this is Perception. It is unlikely that you as the person setting the KPI will be the one delivering it, so you must consider how the KPI will be perceived by others and ensure that the purpose of the KPI is clear and the behaviours that it is expected to measure. Do not be afraid to revisit your CSFs to make sure they are supporting as expected and take staff soundings to understand if the KPIs and CSFs are driving the behaviours you want.
The world of business is complex enough without adding the minefield of KPIs broadsiding you. KPIs are often seen as an easy way to measure success and then become locked by staff objectives, but that ease and simplicity can rapidly become a double-edged sword that can ultimately lead to the downfall of the organisation they are showing as successful. If you do not believe me ask AoL.
Let us know your thoughts and join in the conversation, have you seen KPIs turn toxic?
#geordielife #kpis #perception #PowerBI
