Key Performance Indicators

Key Performance Indicators – Is there a right number of measures?

Many business owners today have systems that gather an enormous amount of data from customers, suppliers, employees, and their accounting records.  This data can then be sliced and diced any which way to produce a bewildering array of measures and ratios that get investigated for clues as to how to make customers, suppliers, and employees happier and processes more efficient.  All of this should then lead to higher profits!

There is a danger, however, that before very long a huge amount of time is spent measuring, and not enough time is spent on doing something about it.

Can I suggest that the solution is to spend some time upfront in working out what the real Key Performance Indicators are and choosing no more than 4 of them to focus on at any one time?

There are two broad types of indicators to consider:

• “Leading” indicators – website page views and bounce rates can suggest where sales are heading.
• “Lagging” indicators – customer retention rate can later explain why sales are up or down.

It seems to me that leading indicators tend to be more useful.

I recently saw an article by James Timpson, the CEO of the Timpson Group.  He confessed to hardly ever looking at the data that the business produces and instead focuses on a few things such as “are the shops open” and “is everyone happy”?  If the answers are “yes”, then they would be making money.  He then related how there are three sets of data that he focuses on.

1. A daily email each evening with that day’s sales.
2. Customer service scores from the online forms, with a bad score generating a call from the local manager to the unhappy customer.
3. The one piece of information that beats everything is the daily cash balance compared to what it was 12 months ago.

This took me back to my days as a finance director for a group of care homes.  The investors were not at all interested in the 50-page management accounts pack that we produced.  They just looked at the one page at the front which showed the five key indicators that we had agreed, such as bed occupancy and average weekly rate.  If they were within range, then they could ignore the rest.  I also remember a managing director of a manufacturing company who focused on improving just one metric which turned the business around.

Every business is different and there should be different key indicators in each one.  These indicators are also likely to change over the years, which means that at regular intervals it pays to review the indicators that you are checking and making sure that they are the right ones looking ahead.

If you would like help in working out what the Key Performance Indicators that you should be checking are, then please get in touch.