W. Edwards Deming said, “In God we trust. All others must bring data.” If there were a single quote to encapsulate the importance of quality Key Performance Indicators (KPIs), Deming’s would be just that.
What are KPIs?
KPIs are indicators used to measure a specified result in your business and aid in providing a focus or measurable goal to strive for. The best KPIs have these six qualities:
- Easily measured
They should “reflect the fact that value creation is a two-way street, and that both sides of the transaction need to get something out of it” (Harvard Business Review, 2020).
Typically, there are leading indicators and lagging indicators that will help indicate the vitality of a business. Leading indicators can help you predict possible trends and patterns while lagging indicators keep track of what has already happened.
KPIs are designed to help you achieve desired results for your organization, but they can become overwhelming if used incorrectly. At Innovation Junkie, we stress the notion of the vital few vs. insignificant many. You can avoid the overwhelm by using only the KPIs that are most relevant to your business goals. In all organizations, large or small, there are a few vital KPIs that will shed light on how the economic engine of the organization is performing.
Five Types of KPIs
KPIs vary across different businesses, but five main types include:
- Input: Measure the attributes of inputs in the process that create outputs.
- Process: Measure efficiency, quality, or consistency of business processes to create a specified output.
- Output: Measure the amount of work that is done.
- Outcome: Measure accomplishments or impacts.
- Project: Measure the status of deliverables or progress on projects and initiatives the company has set to achieve.
Once you’ve chosen the appropriate KPIs, you’ll begin collecting and analyzing the resulting data. You’ll do this by first selecting the best automation tool for your business. Using just one automation tool will help keep your team all on the same page and minimize miscommunication and discrepancies.
Next, you’ll collect data and monitor performance. This is when you’ll begin to get some preliminary answers about your strategy and direction. This step adds meaning to the data, giving you the opportunity to make better, more informed decisions.
After that, you’ll analyze the results and draw conclusions. This step allows you and your team to identify points of underperformance and begin to brainstorm the why, when, where, and how. Once you draw your conclusions, you report and share your findings.
The final step is improving performance. This is when you can finally implement the solutions to the problems identified in the previous steps. You’ll want to continuously track each change you make over time to confirm their efficacy. As you continue the process, you can refine your strategy and keep making improvements, allowing your business to be as successful as possible.
A Final Word
Remember that KPIs are important, but they never tell the whole story. As leaders in your organizations, you must understand that while numbers tell us some things, there can be many reasons why the KPIs aren’t being met. Keep tracking data and refining your strategy, adjust your KPIs if you need to, and remember that growth doesn’t happen overnight.
For more information about business growth strategies, check out the rest of the blogs from Innovation Junkie!