This really is something that you need to think seriously about.
Ideally your KPI's will be able to tell you whether or not you are succeeding in the business.
But be warned - what ever it is that you choose to focus on, that is the aspect of your business that is going to change and if you don't get the performance measure and the way you measure it right, then you might end up with some unforeseen consequences!
One example that I use is a common measure in manufacturing and that is days free of injury down-time. It is a great measure that tells you a lot about maintaining production.
But I have also seen businesses where the employees were not reporting injuries so that they could maintain their incident free record and get the promised bonuses at the end of the period. I have seen people being pressured to take sick days as annual leave to keep the total number of days lost due to sick days as low as possible, and I have seen faulty products pass quality inspections to reduce rework.
All to keep the KPI's at levels that keep management happy. KPIs drive behaviour and not always the way you would expect. So spend some time working out how you are going to know whether your business is successful (or failing) and how you can measure those factors without introducing any gaming behaviours.
What You Need to Measure
One of the key aspects of measuring your business performance is understanding what you are actually measuring. You need to be very clear about the outcome you are working towards (what exactly is your goal), what you are doing to actually make it happen (the objectives, strategies and action plans you have developed to get you there), and the impact those actions are having on your progress.
To use a travel analogy:
- if you do not know where you are, you are not going to be able to work out how far you have come,
- without clear directions or a compass, you will not know which direction to go, and
- if you don't know the mode of transport or how effective it is in getting you to your destination, you cannot estimate the time of arrival.
Knowing where you are comes from documenting the current state of your business. The clear directions/compass are the objectives and action plans. Your performance measure should tell you if you are headed in the right direction and tell you how effective your current actions are at achieving your desired outcomes.
A good performance measure (if it could talk) would say: "This is where we were, this is what we did, and as a result we are this much closer to our goal".
Some of the Business Functions that Could Use a Performance Measure or Two
Typically small businesses start monitoring their performance against the big five business functions or spheres of operation being:
- Finances - are you making a profit or at least breaking even
- Employees - are your employees happy and productive
- Customers - are they happy with your products or services and do they come back
- Suppliers - do you have good relationships with your suppliers and can they meet your needs in terms of demand, and
- Waste Minimization - are your production and admin processes effective and efficient
For an online business the way the data is collected might be slightly different to a bricks and mortar business (i.e., your visitors/customers do not come to a physical location and often unless you use tracking software, you will not even know that they have been on your site or in your store), but the purpose of their performance measures will be the same.
Basically you want to know if the way you are operating or building your business is helping you to achieve your business goals and objectives.
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