As an executive are you measuring the state of your business operations? If not, how do you know whether it is operating efficiently and able to meet customer commitments?
At a recent business event I attended I was astonished to see how few people were aware of the metrics they could measure to gauge their company’s activity.
Most businesses will have some form of metric that they measure – typically at the very least they will measure their sales figures, margins and the size of the sales funnel. But if you restrict yourself to this then the rest of the company is effectively being left to run without any overarching governance.
The key is to establish KPIs – key performance indicators – that best represent the health of your business operations. The KPI is a statistic that can be generated that is meaningful in representing some part of the business operation.
Choosing the KPIs that make sense to your business is not always easy, and some may even be misleading, so it’s important that you take the time to consider which make sense.
Let’s take an example of a business that runs its own production line. A good KPI to measure in this case would be the number of products produced per day. It could be assumed that this would be sufficient to measure the performance of the production line, after all with this metric it would be possible to tell whether the line was producing enough product to be able to meet customer demand. But that metric only tells half the story. What happens if the line is producing just enough product to meet customer orders, but 20% of those produced are being rejected by quality control? Suddenly you have a big problem that your production metric alone was not enough to highlight.
But choosing the KPIs on their own are not enough either. Every KPI that you measure should also have a set target. Presenting management with a series of KPIs on their own doesn’t help them to quickly identify issues within the business that require their attention to resolve. Setting a target for each KPI that has to be met to maintain your business immediately highlights issues when they are not being hit, in fact multiple targets should be set, one which highlights the issue to management but does not yet impact customers, and another that highlights that customers are now being affected due to a more severe issue.
Consider again the example of the product line. A target for the faulty goods per day could be set at 3%. This might represent an issue that needed to be addressed, but would still enable the company to meet customer demand. Another target may be set at 5%, at this rate the severity was higher and it may now impact customer deliveries, so would need urgent resolution.
The KPIs can also be provided to customers if they could support sales. An easy example that most people would be familiar with would be your mobile / cellular carrier. Many of these businesses will publish how much of their territory they provide coverage over, for example saying the have network coverage over 95% of the country. But similarly these metrics don’t tell the whole story. So internally within the business they would also be measuring other metrics that represent the health of the network, that they would neverwant publishing to customers, for example how much data bandwidth they have going to each of their cell tower. Ever had a really good signal on your phone but you couldn’t get sites to load? That could be because the company had great coverage with lots of cell towers, but not enough bandwidth to them to make them useful to customers.
The importance of the dashboard
Business dashboard provide an easy visualisation for metrics across the business. These will group many metrics from across the business and present them in an easy to understand manner so that executives can focus in on areas that need their attention.
A good dashboard should show not only the current KPI measurements, but how they stand in regard to the targets and also in relation to recent historical data.
Let’s return back to the subject of sales KPIs.
Most businesses will focus purely on data stored within their CRM and end up managing the sales team based on the size of the sales funnel and revenue delivered in the last quarter. The problem with this is that the data in your CRM is only the tip of the iceberg. Your CRM doesn’t tell you how well your sales team are performing in sales meetings, whether they are qualifying opportunities, which products they are trying to position within their customer accounts. So while a sales team may be delivering orders and meeting their quota right now its possible that they are only positioning older products within their accounts. In that case the sales from that account may suddenly dry up when those products go end of life and the sales person hasn’t got any newer products positioned. All of this would become apparent if the CRM wasn’t the only tool being relied on as a source of sales KPI data.
Finding sources for data that can be evaluated as a KPI can be even more difficult than identifying what is important to be measured, but it is essential that the methods be found to extract this data in order for the business to stay on track.