After decades of working with leaders across many industries, one best practice that stands out from all others in driving business success: setting, monitoring and measuring key performance indicators (KPIs).
A KPI measures activity that is critical to successfully compete in the marketplace. A company may have its own KPIs and require business functions, departments, and individual employees to set KPIs as well. This way, all efforts are aligned to drive common goals.
A company may have three or four KPIs; the same holds true for departments and employees. In addition to evaluating critical activity, a KPI must:
- Be realistic – a KPI to eliminate downtime is not realistic. An effective KPI would be “to reduce downtime by 5% through scheduled maintenance days.”
- Be specific to meet goals: “delivered on time” is not specific. A better KPI is “to complete delivery within three days of receiving the customer’s order.”
- Be quantifiable, such as tracking the rate of returned product.
- Highlight areas where increased efficiency/decrease in use of resources can be achieved.
- Illustrate the progress toward attaining a goal by presenting data in a chart or graph.
Implementing and tracking KPIs provides management with reliable data to streamline decision-making, encourages teamwork by promoting inter-departmental cooperation, and offers clarity for workers in terms of performance expectations. (As an added bonus, they can also help identify seasonal trends.)
Setting a KPI is just the start – the real value comes from regularly checking in to see if progress is being made and having a clear course of action once the results of the KPI are known.
So, lets say a company has a goal to provide superior customer service through quick delivery. Here’s what a related KPI and measurement may look like:
KPI: Lead time (the length of time it takes from the beginning of the manufacturing process to the time the final product is delivered to the customer).
How it will be measured: Tracking the customer waiting time, which is the length of time between when a customer places an order and the customer receives the product.
Target: To reduce lead time by 2 percent.
Implementing KPIs can increase the entire organization’s efficiency and production capability. An added benefit, KPIs can generate a positive attitude among team members by letting individuals know how they contribute to a company’s overall success. Setting, monitoring and measuring KPIs regularly can reenergize your team and ensure all departments are synchronized in their daily, monthly, and quarterly objectives.