That set an organisation up for success…
Chief Executive Officers (CEOs) rely on key performance indicators (KPIs) to gauge the health and vitality of their companies as well as to measure progress made toward goals.
It’s important to determine the delicate balance of information that’s necessary to avoid being blindsided by issues or, on the other end of the spectrum, be inundated with too much data.
While the KPIs CEOs should watch depend on the specifics of each organisation all KPIs must keep the CEO updated as close to real-time as possible so they can make decisions and adjust priorities as necessary.
KPIs CEOs are watching
In an assessment by Rhythm Systems of the KPI Watchlist for 10 of their top-performing client CEOs, KPIs that are commonly deemed important by CEOs from a variety of industries fall into four categories:
- Customers: Customer happiness, customer service issues, customer complaints
- Employees: Performance reviews, employee health, associate/team engagement
- Revenue: Revenue growth, gross profit, average gross margin
- Processes: Sales funnel, stock availability, inventory turnover
The CEO ideally needs to track the top two metrics from each of these areas in order to drive the company’s success.
Let’s dig deeper into two of these categories: KPIs for Employees and KPIs for Processes.
KPIs for employees
It’s imperative to define KPIs for every individual in the organisation because they drive action to produce the results a company has defined for success.
Leading KPIs measure the daily and weekly activities and actions that lead to results – input measures that are often more difficult to measure.
Lagging KPIs are often “output” oriented and the results of the action – easier to measure, but often more challenging to influence.
The Function Accountability Chart (FACe) lists the common functions that must exist in all companies, even start-ups, although the founder is usually doing most of the functions in the beginning.
When scaling the business, the idea is to determine what function on the FACe should be delegated next.
FACe helps the leader of the company ensure they have the “right people doing the right things right” on the leadership team and lists one or two KPIs for each.
The most important “head of company” KPI should be a leading indicator to measure the specific actions that lead to results.
A key KPI of the CEO is always to have “A Players” in all of the leadership functions of the company. When many founders/CEOs realise this, they bring someone else in to head the company, so they can focus on another function.
Once a vision has been established for a company, one to three KPIs can be created by every individual for what they can do over the next quarter to help the organisation succeed.
This “line of sight” allows everyone to see how their individual daily actions and contributions link to the company’s goals.
Rockefeller Habits, the framework developed by Verne Harnish to help businesses scale and outlined in his book Scaling Up, also touches on KPIs in Rockefeller Habit #9: all employees can answer quantitatively whether they had a good day or week through an ongoing KPI or two. This is column seven of Scaling Up’s One-Page Strategic Plan (OPSP).
When leaders and employees can answer, “Did I have a great day or week,” they are clear on their priorities and their KPIs.
In order for the entire organisation to succeed together, everyone should be aligned toward hitting the same objectives.
If people struggle to determine if they had a great day or week, it can signal that the KPIs and priorities need clarity.
KPIs for processes
Most organisations have four to nine processes that drive the business, such as the processes for developing and launching a new product. Or, the process for recruiting, hiring and onboarding new employees.
Since processes often flow horizontally across various functions, it’s important to track and measure the performance of the process in order to identify when something isn’t working well.
The Process Accountability Chart (PAC) provides a place to track key processes and designate the person that is accountable for the process.
In addition, two or three KPIs should be created so your team can track the health of each process.
One very important KPI for a process would be the length of time from start to finish a specific process takes in either number of days (to deliver) or number of hours (to produce).
Time is not the only KPI to track, but since it drives efficiency it’s an important one.
5 steps to KPI development
- Identify the problem to be solved or opportunity to leverage
- Set the outcome to be achieved and action to be taken
- Chart the process to execute
- Select leading and lagging KPIs to measure progress
- Set accountability to measure and report
Keep the following in mind as you develop your company’s KPIs:
- Focus on an outcome that makes a difference
- Align with your BHAG™, 3HAG, 1HAG, and quarterly plans
- Make them measurable with a leading and lagging KPI
- Require collaboration to achieve them (cross-departmental)
- Clear start and end point
Elements of KPIs: priorities, metrics/data, balance
Key performance indicators (KPIs) are used to measure the achievement of a priority. Metrics measure and predict progress.
Growth companies are cognizant to achieve balance on leading/lagging KPIs and people/productivity priorities and KPIs. Let’s dig into each of these a bit further.
Priorities
The CEO needs to determine what priorities the company will focus on. While there are likely hundreds of things you can choose to do to move your company forward, the key is to prioritize and find a smaller number of activities that make the biggest difference.
Once the priorities are determined, the entire team needs to get onboard to accomplish them.
Alignment results when everyone on the team is working together on the same priorities.
Be sure to make your priorities S.M.A.R.T:
- S = Specific,
- M = Measurable (KPI),
- A = Achievable,
- R = Realistic, and
- T = Time-Bound.
Steve Jobs once said, “I’m so proud of what we don’t do as I am of what we do.”
Adopt that mindset and you’re on your way to prioritizing the most essential activities for your team.
Metrics
It’s essential to gather that data and metrics to help you gauge if your performance is in line with your plans.
They help you answer the question, “How are we doing?” and great metrics can help you predict, “How will we be doing?”
There are many data points your company can collect, but the goal is to use the priority discipline to find the smaller number of metrics that can make the biggest difference to your organisation.
Leading a business can be very much like driving a car. Consider what would happen if you covered the windshield in black paint and were asked to drive the route ONLY by using your rear-view mirror.
Just like when driving, some of the most critical information to navigate to success and avoid peril is what you see before you are there. But, it’s also important to see what you have covered and what is behind you.
These are the leading and lagging indicators of growth companies – the KPIs that help you determine where you will be in the near future (leading indicators) and where you have successfully been in the past (lagging indicators).
The most successful growth companies measure and monitor both.
Balance
Growth organisations must have a balance of priorities and KPIs in the areas of people and productivity.
Organisations that focus exclusively on productivity might get a lot of work done but suffer from high personnel turnover rates and poor cultures.
On the flip side, companies that focus too much on people and culture often struggle to be profitable. It’s important to strike the right balance.
More KPI support
In his book, Key Performance Indicators (KPI): The 75 Measures Every Manager Needs to Know, Bernard Marr shows how to use KPIs as a navigation instrument to measure how well an organisation, business unit, project or individual is performing in relation to their strategic goals and objectives.
Another resource when developing KPIs for your company’s functions and industry is the KPILibrary.com.
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I hope you have enjoyed these insights. Have a great week and stay growth-focused!
Best Wishes,
Jonathan
