Tailoring Your KPIs to Your Business

In recent years, key performance indicators (KPIs) have become critical to accurately gauging the state of a business and effectively measuring operational performance.  Business intelligence tools have provided companies with a great way to measure these vital metrics to ensure that their most important objectives and goals are being met.

Yet, few companies truly understand what KPIs are all about.  True, many BI packages on the market today come complete with pre-defined reports, charts, and graphs for KPI monitoring.  These are usually based on standardized measures that apply to most all businesses in every industry, and are designed to accelerate the development and implementation of comprehensive performance management strategies across an enterprise.

But, when it comes to KPIs, the “one size fits all” approach is not always best.  While standardized KPIs are a good start, they alone are not enough.  Every company is unique in its purpose and mission.  Therefore, each one requires different metrics and performance indicators to determine how well it is achieving its most critical goals.

In addition to standardized performance metrics, companies should create a set of custom-tailored measures that follow the guidelines below:

• Base them on key business drivers.  What is your business really trying to achieve?  Are you trying to boost market share?  Or is profitability and shareholder equity your primary goal?  Perhaps customer retention is most important to you?  Define three to five key business drivers, then identify the business processes that support them.  It is the effectiveness and impact of these activities that your KPIs should be tracking and assessing.
• Make them department-oriented.  What is relevant to one department may not be so crucial to the next.  For example, your sales department will have different goals to achieve then your accounting or customer service teams.  Therefore, each division should have their own set of metrics – that tie directly into the overriding KPIs for the enterprise – to help them determine if they are meeting their plans, and what corrective action, if any, needs to be taken. 
• Set role-based goals. Even within the same department, goals will vary from one employee to the next.  That’s why its important to break larger objectives down into smaller measures, so each worker will know what is expected of them, how well they are doing, and how their role impacts the performance of the department.

In the long run, a performance management strategy won’t work if the KPIs being measured aren’t the right ones.  Be sure to consider company mission, structure, and other unique factors and traits when outlining your plan and defining your performance metrics.