Measuring success and goal setting is one of the most pivotal elements of strategic planning. Key Performance Indicators (KPIs) allow us to do that.
However, the KPIs themselves are not the data or “instructions” for how to measure success.
Rather it is the strategy and reasoning behind them which will propel the company. Knowing when to change KPIs is key to success. Here is the complete guide.
KPIs vs. Metrics: What’s the difference?
KPIs and Performance Measures (or metrics) are often used interchangeably. While these exact definitions are trivial, there is an important difference between KPIs and Metrics.
KPIs are the measure of how the business will move forward and which tools will fit the personalized goal that is trying to be achieved.
Metrics track and provide data, but they are not the means to an end, rather they are what’s used to achieve the evaluation of the KPIs.
For example, the company sets a goal of a 10% increase in profit. Metrics such as new customer acquisition, an increase in website traffic, or an in-house metric of reducing costs can all be used to track the KPI.
However, these metrics by themselves won’t tell the complete story, as an increase in website traffic or a reduction of costs doesn’t mean an increase in profit in it of itself.
Although some metrics such as net income and ROR provide crucial data for businesses even when standing alone, financial KPIs are still needed for long term growth and more in depth goals.
What Makes KPIs Unique?
In addition to the differences in definition, the makeup of KPIs require 4 aspects which make them unique:
1) What you are measuring- The more descriptive and detailed the better.
2) Your target- Needs to match the unit of measurement and due date.
3) Your data source- Identifying where the data will be taken from.
4) Defining a tracker- Clear responsibility directed to one person or department.
KPIs are not like other data tools, and using them to adapt to changes inside the organization will ensure maximized success. Here are a few examples of ways that KPIs can help a company adapt:
- Accountability- KPIs ensure accountability from all sides of the organization. With overall metrics, it is very easy for individual people to get lost in the success or failure of the company, but KPIs create accountability from the smallest, part-time employees all the way up to management and executives. Employees who don’t keep up with the current KPIs and employers who’s teams aren’t reaching their checkpoints, will all be held accountable.
- Analyzing Patterns Over Time- A company’s best weapon is data, and the more that is collected, the more prepared you can be. If you use the same KPIs over and over, clear patterns will be detected which can help with stability and forecasting. However, those companies that are able to continue analyzing current KPIs while also implementing new, individualized ones, will be the ones that have the best chance for success.
- Measuring Progress for Employees- One of the biggest reasons for the high turnover rate that is fueling the Great Resignation is a feeling of dissatisfaction amongst employees. For many startups or young companies, measuring progress comes automatically as there are constant changes. However, for established companies, burnout can be an issue if checkpoints or measuring progress is not implemented.
- Measuring Targets- Although it is essentially the same as measuring progress, measuring targets is the most important reason of them all from an organizational standpoint. In addition to adding motivation, finding the right KPIs that measure targets will help the company break down its goals and see what is on the right track and what needs improvement. Increasing sales by 15% is a great goal to have, but without breaking down the targets, you will never know if marketing, leads, or sales is the one coming up short.
When is it time to change the company’s KPIs?
As mentioned above, consistent KPIs create a healthy level of predictability and consistency. In fact, experts recommend each business to have a “single performance indicator” that has been used since the establishment of the company.
This indicator stands the test of time and will always be a good long term measurement for the company. (Similar to how it is recommended to keep your first credit card open forever).
After all, if you are doing something right, and have years of data to back it up, then you can really take control of certain market niches. This is especially true for B2B organizations with long buying cycles (1-2 years) and relatively slow development.
In these cases, revisiting the company’s KPIs should occur at least once a year. If after a thorough review it is determined that nothing needs to be changed, this will assure the organization (and analytics teams) that their efforts are appropriately directed and the validation was worth the time.
If the company has a short purchase cycle or a fast development time, then it is suggested to review the company’s KPIs every 6 months at the very minimum.
Of course, if the business is going through big changes such as automation, employee overhaul, or planning for big projects, it is worth it to review KPIs and keep them up to date even more often.
During times of big change, especially rapid ones from outside the company’s control such as Covid-19, it may even be time for a KPI overhaul.
However, keep in mind not to overwhelm any department with too many data requirements or deadlines as this can be counterproductive.
How to Change KPIs
Whether it be due to company transformation, outdated metrics, or simply the yearly KPI checkpoints, once an organization decides to add or change KPIs, the process needs to be as smooth as possible. Here is the 3 step process for changing KPIs successfully and smoothly:
1) Choose with care
Limit the company to 5-6 KPIs otherwise it will be too overwhelming. Having everyone at the company be aware of more than that won’t help productivity and will usually do the opposite. A few strong KPIs with clear goals and expectations will do wonders for company stability.
2) Lead the company into understanding the change
KPIs mean very different things for different positions, and some employees may have a feeling that these KPIs are irrelevant to them.
Choosing KPIs wisely and explaining the relevance to every department will bring out healthy leadership in the company. This is especially true when it is decided to change KPIs, as the reasoning behind the change is even more important.
3) Use Excel enhancement tools to help
Every KPI or data tracking tool starts with Excel as a data collection spreadsheet. Oftentimes, the data gets edited, multiple copies are made, and simply too many people use the same file, especially when the KPIs are tracked from multiple departments.
Using Excel enhancement tools to consolidate and forecast the data is another change that can make the process smoother when changing KPIs.
Conclusion
KPIs are an extremely important aspect of business goal setting. Even though it takes a lot of work to rethink KPI processes, it is worth it to review and change KPIs at least twice a year (especially for young companies). Changing KPIs when necessary will keep your organization goal oriented and on the right track.
