The key to key performance indicators and how best to measure them
Every company has a mission statement, a business strategy, and strategic objectives. The company will follow processes and take actions in order to attain those objectives and will also strive to create a culture of high performance and business growth along the way.
In this complex process, managers need clear information on how the company is doing and what effects particular actions have on the immediate and long-term business goals. This is where key performance indicators (or KPIs) come into play. In the following, we discuss their nature and importance as well as how helpful it is to leverage the power of specialised software packages that automate the tracking and evaluation of vital company statistics, and help you steer the business with a steady hand.
What are key performance indicators?
A KPI is simply the measurable numeric expression of a business objective. Its value tells you how close your company is to achieving a certain goal. There are higher-order KPIs, such as general company performance, and lower-order KPIs, such as sales growth, employee turnover, marketing ROI, customer satisfaction improvement, and so on. Company leadership and management functions are typically tasked with defining key performance indicators, and they will often employ the SMART principle:
- Specific: KPIs must fit closely to one of your business objectives.
- Measurable: You must be able to put a value on your KPIs and monitor them continuously until the goal is attained.
- Attainable: The strategic goal must be realistic.
- Relevant: The KPI must reflect a goal that is essential to your business performance.
- Timeframe: You should have a foreseeable deadline for achieving the goal that you are tracking.
A good example that follows the principles above would be, 'Share of website visitors who convert to customers, in comparison to previous quarter'. Once you have set up your SMART key performance indicators in this way, the next step is to communicate them throughout the organisation.
Clear and effective communication of goals and measurements precipitates the development and successful execution of KPI-specific action plans, by all relevant company actors. Once everyone is informed and the road ahead is charted, you can go on to track your progress.
How to measure KPIs effectively
Once your SMART KPIs are in place, it is time to introduce the critical success factors (CSFs), or those specific activities on which individual employees or whole departments have to focus on in order to contribute to achieving the ultimate strategic objective.
Sticking with the conversion example above, a CSF would be, 'Increase conversions by 30% by the end of the quarter'. Based on well-formulated CSFs, your KPIs will emerge naturally. The next step is to take actions towards improving conversion and to measure their effectiveness continuously.
When you amass enough measures, you can track your progress towards the KPI targets. A professionally designed software package can take the guesswork out of tracking KPIs by collecting and distributing information to all relevant company stakeholders, saving you time and money.
Demystifying KPIs and producing growth
Key performance indicators are the shortest route to improving organisational performance and growth, provided you define, measure and monitor them well. Clearview Systems' smart business software solutions can help you quickly identify areas for improvement. Get in touch today for a guided product demo.
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