Key Performance Indicators (KPI’s) are all over the place. You read about having good metrics in your business. Great measurements help you move forward. Lousy metrics just give you information and the information is often more confusing than helpful.
If it’s simple it’s clear.
My main problem with MBA’s and the training they get is they tend to take simple ideas and make them complicated. I find that a sign of a master is someone who can take complex ideas and make them simple.
Clarity in your communication and measurements is where you need to start when you think about KPI’s in your company. Too often I visit a company and look at their internal measurement system. I usually can figure it out after I think really hard about it for a while. Instead, wouldn’t it make more sense if an outsider could figure out your key measurements in less than ten seconds?
Remember, your metrics are for everyone.
By everyone, I mean everyone in your company. If you’re tracking metrics, your senior managers are not the ones who are going to improve them. It’s the people who are doing the job.
One of my favorite sayings is you’re the expert at your job. If that makes sense to you doesn’t it also make sense that all of your people would understand why you measure what you’re measuring?
Know what you’re measuring.
By what I mean whether it’s something you count or something you would take a percentage of. If you’re measuring the general and administrative expenses in your company it should be measured in fixed dollars. It’s hard to change G&A. Knowing how much you’re spending every month is a good thing.
At the same time, don’t mix fixed costs with variable costs. Variable costs should be measured by percentages. Yes, the dollars might be important, but it’s the percentages that you want to influence. When you combine variable and fixed costs, you can easily be misled. All you have to do is either add or lose sales and that percentage will drastically change. It’s that type of false measurements that provide no value for improvement in your company.
Know why you’re measuring it.
This is a big deal. Don’t just measure things because you always measured it. Make sure that anything you measure has meaning. It’s something that can make your business better.
A good way to test whether it’s meaningful is to ask your line workers why you have a particular KPI. If they can’t give you a good reason then it’s either too complicated or you shouldn’t be measuring it in the first place.
If it doesn’t make you better, stop measuring it.
I’m giving you permission to stop measuring things that don’t serve you. Every year you should examine every measurement you keep in your company. If you can’t come up with a simple reason for the measurement or the measurement has not helped make your company better you should give up the ghost.
I often write about behavioral economics. This is a good case where what’s called sunk costs or inertia comes into play. You’ve might have been doing it this way forever. There must be a reason you’ve measured it but you just can’t think of it. If this sounds like you, don’t you think it’s time to stop using that measurement? If you have the courage to stop using things that don’t work you’ll be happier and it won’t even hurt. I promise you.