Keep it simple… simple and highly focused!
Three parts of this article explain how to achieve these goals:
6 Essential KPIs to Ensure Business Survival
If you have just a few minutes a day to track business performance, focus on these must-have performance indicators.
When your organization is in the calm waters, having a long list of performance indicators sounds like a good idea. You have time to analyze various metrics from the viewpoint of different perspectives and focus on even minor improvement possibilities.
What about tough days when resources are limited, management is busy with fire-fighting, and looking at the performance dashboards sounds like a waste of time? In that case, having hard data to support business decisions is even more important, but we don’t have the luxury to track 100+ metrics, so we must focus on the most important ones.
Key Focus Areas for the Performance Management
- Getting new customers. Performance metrics for marketing and sales.
- Making customers happy. Key metrics for customer service and product quality.
- Keeping team busy and happy. Performance and engagement metrics for your team.
- Cash flow. Key financial indicators to ensure positive dynamic of the cash flow.
Below you will find examples of the performance metrics (KPIs if you want) together with some use instructions. Make sure you have those metrics on your dashboard, especially during crisis times.
Getting New Customers
Prospective customers are the leading factor of your future cash flow. If things go wrong and there are no new signups for your Cloud app or people prefer a new supermarket next door instead of your small shop, then something needs to be changed immediately.
- Metric 1. Leads generated. What are the acquisition numbers? For example, website visitors, newsletter subscriptions, case study downloads, daily visitors to the shop, etc.
- Metric 2. Conversion rates. What are the conversion rates between different levels of your marketing funnel? For example, from the prospective customers who attended a live demo to the paying customers.
Depending on the variety of lead sources and the complexity of your marketing system, the number of metrics might grow significantly (in the previous articles we discussed separately marketing and sales KPIs), but the idea is always about these two numbers:
- How many leads you have (metric 1) and
- How good are you in converting those leads into paying customers (metric 2).
Have a bird’s eye view of your business to get these numbers. If the challenges are not visible from the first sight, then dig deeper into specific lead generation channels and lead conversion tools.
Making Customers Happy
Here we are talking about providing customers with what they expect – a high quality product and excellent customer service.
If there is a problem with lead generation or product quality, an angry customer normally won’t call and won’t tell you why they prefer not to buy your product; on the contrary, your loyal customers might mention something.Make sure your team captures these less obvious feedbacks (here are some ideas about how to improve that skill).
A customer service scorecard might include various KPIs. Our goal is to pick 1 or 2 you need to focus on. The easy choice would be NPS (Net Promoter Score) metric, but for my opinion this metric is too general and can be easily biased.
How about this one:
- Metric 3: Impressed customers, %.
Track the percent of customers who were impressed by the high quality of the service provided.
- Was a client impressed by a super-fast and detailed response?
- Was the fix to the problem delivered unexpectedly fast?
Obviously, the quantification of this indicator is subjective, but with a good team (see what I mean below) you can manage this.
Look back at the previously attended customer queries – could your team do better?
- Metric 4: Product/service quality (as perceived by your potential clients and paying customers). We discussed this in details in the Customer perspective article.
In your case this metric might be as simple as “Onboarding time” or as detailed as “Product architecture complexity.” Find the one that corresponds to how your prospective customers and paying clients perceive quality.
Quality vs. Marketing
What metrics should have a higher priority on your scorecard:
- Quality-related (metrics 3 and 4) or
- Marketing-related (metrics 1 and 2)?
It depends on where you are now.
Generally speaking, burning marketing money on a mediocre product is not a good idea, but if you are in a new market, and already have some interesting features, then customers can forgive you for some quality issues (at least for some time).
Keeping Team Busy and Happy
If marketing, sales, or customer service don’t work as expected, look back at your team and your management efforts. I believe that most individuals have or can develop a strong intrinsic motivation, so we are not talking here about money rewards and incentives schemes.
Employee Challenge – Starting Point
In any organization there are three key areas we need to look at in the context of employee challenges.
Make sure you have the right people working in your business. It’s not just about measuring the performance, it’s about tracking soft skills as well.
Track the way people communicate to the clients, quantify how one member of your team influences his or her colleagues.
A 360-degree analysis might be a good starting point for this kind of quantification.
Quality of Management
Give your people the necessary tools to do their job.
I’m not talking here about providing a desk with a computer – think about all routine tasks that could be automated, think about outdated product architecture that affects morale of the engineers (yes, morale can be quantified as well).
Think about your management style (quantify it in the way discussed here).
Strategy Awareness, %
Make sure that your employees understand how they can contribute. Make sure they have clear goals and tangible steps towards them.
If you need a quantitative indicator for strategy awareness, then ask members of your team to explain the strategy of the organization in simple words. Count the percent of the correct answers – you might be surprised by the results.
A solution plan to this challenge might include an OKR framework that we have discussed recently.
Employee Challenge – Culture
For example, track:
- Quality assurance coverage, %. How does your team treat problems found in the product? Do they simply fix them, or are they doing a root-cause analysis and trying to come up with a prevention plan?
Someone might argue that this metric is hard to quantify, actually it is not. Here are the steps to convert this behaviour pattern into the numbers:
- Prepare a list of the biggest challenges you faced in the last 6 months,
- Mark those that were resolved, and
- Mark those that now have a prevention plan for similar challenges.
Some basic calculations will show how good your team is at quality assurance. Don´t like the numbers? Discuss with your team how things can be done better in the future!
Employee Challenge – Metrics
My suggestion for the employee metric would be to review the ideas discussed above and compile an index metric out of them. Call a new metric something like:
- Metric 5 (index): Team success index. Put inside metrics for the most emerging topics that you have discovered.
Alternatively, you can browse some HR related articles on our website, to pick the metrics that resonate the most with your current situation.
Ensuring Positive Cash Flow
A big picture of successful financial situation can be described by a cash flow metric:
- Cash flow. Do you earn more money than you spend? Remember to look at cash flow in dynamic; ask a question: how does the cash flow change over time?
If we want to go more into the details, we can track:
- LTV/CAC ratio that tells us how efficient marketing is.
It is based on:
- Customer acquisition cost (CAC). The average price you need to pay to get a new customer.
- Customer lifetime value (LTV). Your expectation of the net profit related to a new customer.
Formally, the last 3 metrics belong to the financial domain, but as you can see, they have a direct relevance to other areas discussed above. You can focus on one of these metrics, or as we did before, build an index indicator for finance:
- Metric 6 (index): Financial health index. For example, it can include cash flow and LTV/CAC ratio metric.
How to Build an Index Indicator
I mentioned several times that certain metrics can be packed into an index indicator. If you need to build an index manually, then here are the steps to follow:
- Have a list of several metrics you want to group into the index indicator
- Normalize the performance of each metric in the group. E.g. we need to use certain scale to convert $, m2, days, calls/hour into percentages to make metrics comparable.
- Assign weight to each metric. For example, the weight can be defined on a 0…1 scale.
- Calculate the performance of the index metric as a weighted average of normalized performance of each individual metric.
You can find more details about scorecard normalization, using weights, and calculations in this article.
Find an appropriate automation tool for your scorecard. You can start with a simple dashboard in MS Excel or choose a professional software.
- Before we discussed some advantages and disadvantages of each approach.
Users of BSC Designer are welcome to start with a free scorecard template provided with this article.
What do you think about the discussed top 6 metrics? What metrics do you focus on in your organization?
5 Easy to Implement KPI-Related Ideas that Drive Immediate Results
We’ve recently gotten a comment to “10 Step KPI System” book:
“I have found some good ideas, but in our organization I simply don’t have enough political weight to try all of them…”
Instead of focusing on all possible improvement tactics let’s focus on ones that are relatively easy to implement, but drive visible improvements in a short period of time. In a case of success, the person who suggested those tactics will gain some political credits and prepare ground for future improvements.
1. Find Metrics for the Bottleneck
Among all possibilities, focus on those parts of the business system that are limiting your performance. Thinking in this way will help reduce the number of less useful metrics and focus only on those few indicators that are actually “key” for your business.
Sometimes this approach looks like fire-fighting and some long-term perspective might be ignored, but at least your team will be clear about where the priorities should be right now.
2. Identify Change Metrics
Knowing what is limiting your business is a good starting point, but what is even more important is to understand how to extend these limits. Look for the ways to change, and respectively find the metrics that will help to confirm that you are on the right track with the changes.
For example, delivery service might find out that their bottleneck is the number of trucks on the route. A change goal in this case might be switching some deliveries to a delivery service with drones.
You might argue that delivery with the drones is a significant innovation, and it’s hard to find something similar in our niche. That’s true, but at least your team will now know where to focus their innovation efforts, and what changes can drive significant performance improvements.
3. The Power of Funnel Metrics
Many organizations have a goal of improving profits by X% next year. One of the ways to make this goal more tangible and actionable is to build a funnel model.
For example, if we are talking about a sales funnel, then the right questions can be:
- How well is our business attracting potential customers?
- How well is our business generating leads?
- How well are the leads being converted into paying clients?
- Draw a money/value/customer flow and use it to understand what can be improved. Small improvement on each level of the funnel will lead to significant improvement in overall performance.
Let me use some simple math to illustrate the power of funnel metrics. For example, we have a 3-level sales funnel with a 5% conversion ratio between each level. On the first level, there are 10,000 prospect customers (for example website visitors), then there are 500 qualified leads (for example, those who downloaded the white paper), then there are 25 sales. The overall goal is to increase sales by 20% up to 30 sales. One way to do this is to increase the number on the first level by 20%, but we can also work with the conversion ratios.
What change in the conversion ratios would give us a desired 20% increase? 20%? 10%? No! Actually, in this case we just need to increase both conversion ratios by 0.5%!
The good thing is that we can build a funnel model for any aspect of the business from sales to innovations.
4. Practice “KPI Freedom” with a Team
A lot was said about the importance of the culture in the organization, including the performance measurement culture. In my book, I talked about the ways to change the culture, but in this article, I promised to share only ideas that will drive fast results. That’s why I suggest the following practical exercises.
Present the idea of “KPI freedom” to your team. Allow (and obligate) each member of your team to select 1 metric that he/she wants to use as a key one. This metric should be relevant both – in the context of the company’s overall performance and in the context of a person’s daily job.
Be prepared for some interesting and unexpected discussions provoked by the different ways people see their responsibilities and their impact on the overall performance. Take a chance to better explain where the company is aiming and how top managers plan to achieve the goal. A strategy map is a good catalyst for such discussions.
Such discussions will be more productive if there is someone to explain the difference between the process and the result metrics, as well as the difference between leading and lagging metrics.
5. Visualize Performance Figures
Do it without any additional comments or explanations, just visualize 1-2 important metrics on a big screen that your team will see each day. Make sure you show the current performance and the historical trend.
I would keep it in this format for a while. If you are lucky, your team will soon start asking about the numbers, what they mean for them, and if/how they can contribute. Then, further discussions can be supported by strategy maps and more detailed dashboards. Use professional strategy execution software, like our BSC Designer, to automate some routine aspects.
These were 5 actionable ideas for the KPIs. I hope you found at least 1 that you will try. Feel free to share your experience in the comments.
5 Steps to Make Your Strategy Scorecard Agile
Agility is a broad concept: the term itself became a buzz word with a wide range of meanings from a software development technique to a general business management practice. Agility is not just about making things faster, I’d say that the most important benefit of agility is a cultural shift:
- Focusing on delivering value rather than on “doing the job,”
- Implementing retrospective reviews and transparency rather than mandating goals and using formal reporting.
Strategy or balanced scorecards incorporate many ideas of agility, but even the best training and respective implementation won’t be able to change the culture in the companies where a certain level of business maturity was not yet achieved.
We Implemented a Strategy Scorecard, But…
Business professionals often say that the scorecard was successfully implemented in their company, but…
- Employees don’t want to get involved,
- Top managers are not that engaged as they were in the beginning,
- Scorecard was not updated for a long time,
- The list goes on…
How to fix these problems?
Scorecards are a Business “Hardware,” a Culture is a Business “Software”
Let’s start with an agreement that we actually faced with two types of problems. I’ll use an analogy to illustrate my point: in computers we have hardware, but hardware is useless without software. The same applies to the business performance management:
- Scorecards and supporting performance data are the “hardware” of your business, but they are useless without…
- “Soft” parts – culture, values, and management skills.
When analyzing the issues mentioned above we see that some of them appeared because of the problems with strategy maps and performance indicators (“hardware” part of the scorecard), but in most cases the real problem is with the management culture in the company or what we call “soft” parts of the scorecard.
The solution is to work on the “soft” parts of the scorecard, and implement some ideas promoted under the “agile” buzz word.
Step 1 – Make Sure There is a Good “Hardware” Part
The first important step in achieving agility is to understand that business scorecard with supporting data form a “hardware” part. Make sure that you have a good “hardware”:
- A well-described strategy with business goals and with the cause-and-effect logic that stands behind these goals.
- A set of well-defined leading and lagging indicators aligned with important business goals.
- A formal accountability via action plans aligned with business goals and performance indicators.
- A good balanced scorecard software is used (try our BSC Designer) for strategy visualization and automation of the data input.
This “hardware” part is a necessary base to develop a “soft” part.
Step 2 – Identify Cultural Problems that Affect Execution Excellence
For sure, the “soft” part is the most challenging one. You might face such problems as:
- Missing employees’ buy-in and motivation to use the business scorecard,
- Lack of sponsorship by the top managers, and
- The problems with continuous usage of the scorecard.
Instead of fixing the mentioned problems (they are actually just the symptoms), I’d suggest to focus on the leading factors. In 99% of the cases the problem is actually at the cultural level.
Let me share some of the examples:
A company wants to improve customer service by focusing on “Time to resolve problem rate” indicator; but employees start calling to each other with the only goal being one to game the indicator.
Get rid of the KPIs that are the part of “carrot and stick” motivation model! The execution is not just about monitoring indicators value – properly defined and explained business goals are much more important.
A company wants employees to take into account business context and collaborate with other departments when working on the project, but when we review the actual work flow, we see that it looks like isolated silos where teams are at war and don’t exchange any ideas.
Break silos! Get people from different business units into one room, start the discussion around your strategy and how you are going to execute it!
Employees are asked to achieve excellence in whatever they do, but was the excellence achieved in the management itself?
The execution is not just about setting stretch goals and assigning budgets, it is more about the discussion and education that leads people to understand the problem better and come up with a good solution. Learn to execute! (See Step 4 below).
Step 3 – Update Company’s Culture; Introduce Transparency
Prepare an action plan to address the problems identified before. Here are some books about organization culture that I do recommend:
- Organizational Culture and Leadership by Edgar H. Schein
- Delivering Happiness: A Path to Profits, Passion, and Purpose by Zappos CEO Tony Hsieh
- Tribal Leadership: Leveraging Natural Groups to Build a Thriving Organization
One of the things that you might change right away is to introduce more transparency to your business by start talking about your strategy.
- In agile, the term “transparency” is used often. It doesn’t mean you need to publish all your plans on the Internet and ask your competitors to review them. No, we don’t want to reduce things to the absurd. But how can you possibly ask your team members to contribute when they don’t have a clear picture of where the company is going.
Think about this! The next time you are going to talk with your team about “objectives” and “tasks” make sure that you have explained the strategy context well enough.
Consider achieving more transparency in other aspects – from marketing to the incentives and rewards. It’s not about letting people know your secrets or not, it is more about building trust between leader and the team.
Step 4 – Execution via… Socratic Dialogs
What about execution? I assume you don’t have any difficulties in setting business goals, and aligning specific action plans with these goals. Hopefully you’ll achieve success, but what will you do if you don’t?
- Do you actually lead your team or just give out orders? Look at your strategy map! Are those cause-and-effect links between business goals defined on high-level only (=useless) or there is good understanding of why and how your team is going to achieve these goals?
This understanding is achieved via the discussions around various aspects of the strategy. Running these discussions is another soft skill that one needs to master. I find the “format” of Socratic dialog very helpful in this case:
- Ask questions to your team,
- Help them to find the answers, and to formulate the new questions,
- Understand nuances of the challenge and respectively come up with better solutions.
That’s what execution is, it is about educating your team, not about mandating goals from top to bottom and waiting for the KPIs to return into the green zone.
Do you need a starting point for those Socratic dialogs? Review your old plans and commitments (it’s very similar to the retrospective in agile):
- Were agreed goals achieved? What was done well? Where can be improved?
- What story do performance indicators tell you today?
One of the best books on the topic of execution is “Execution – The discipline of getting things done” . It is an excellent real-life guide on improving execution style. Before reading the book, I recommend starting with this short interview  with one of the co-authors – Larry Bossidy – to make sure that your management style actually resonates with his ideas.
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Step 5 – Implementing the Culture of Repetitive Excellence
And that’s it? We implement these ideas and everything suddenly starts working properly? Not yet! What we want to build is not just some culture, but a culture of excellence. Such big changes are not done in one day… I like this saying very much:
We are what we repeatedly do. Excellence, then, is not an act, but a habit.
Think about the habits that exist in your company:
- If they actually support the culture that you want to build?
- If your leadership efforts create the right habits?
Probably instead of finding another KPI you’d better find a keystone habit like we discussed in this article before.
I hope with these 5 steps you’ll be on the right track in achieving agility for your business scorecard. It’s just the beginning of a very interesting journey (don’t forget to share your thoughts and road stories in the comment box below), that hopefully will not only update your performance management approach, but will bring a culture of continuous excellence to your team.
- ^ Strategy Maps: A Guide for Getting Started, Aleksey Savkin, bscdesigner.com
- ^ Leading Measures – Specific Recommendations to Find Them, Aleksey Savkin, bscdesigner.com
- ^ “Execution: The Discipline of Getting Things Done,” Larry Bossidy, Ram Charam, Random House Lcc, 2003
- ^ Larry Bossidy: The Thought Leader Interview, Strategy + Business, 2002
- ^ Will Durant, The Story of Philosophy: The Lives and Opinions of the World’s Greatest Philosophers (1926) summation of Aristotle‘s ideas