Identifying the perfect KPIs (short for Key Performance Indicators) that provide you with the insight you need to evolve and elevate your company can be a tricky business.
You can have regular measurements and follow up on KPIs like:
Over time, measuring KPIs can improve your performance.
But your insights become murky if you keep track of key figures irrelevant to your business.
This makes it crucial to consider precisely what KPIs to measure to run your company effectively.
To achieve extraordinary results, it is not enough to choose the most relevant KPIs regarding the challenges facing your business or your company’s goals, size and maturity alone.
You must also utilise the exact key figures on all levels within your company, visualise progress and be aware of unintentional sub-optimisation.
Suppose your company’s leadership team has solely decided upon your KPIs without proper groundwork in the daily routines of your workforce. In that case, you risk ending up with numbers that don’t reflect how well your company machine is running.
However, if you manage to get a well-substantiated and relevant KPI framework in place, you will gain an intimate feeling with your machine. And you will be able to make corrections when need be.
My own inspiration for working with KPIs comes from professional athletes.
They establish goals and milestones, they are patient and systemic, and they use statistics and benchmarks when analysing their own as well as their competitors’ performance.
And they keep doing this until they reach their goals.
However, even sizable companies face serious challenges when they try to implement the professional approach of the athletes.
See the 8 guidelines for best-implementing KPIs in your company based on data from business solutions.
1. Make the complex simple
A key figure, KPI, or whatever you want to call it, simplifies a complex phenomenon.
For instance, if the company is lacking revenue, it’s natural to focus on the invoicing percentage of the individual consultant or department.
This KPI shows the percentage of the employee or department’s standard working time invoiced. But the simple key figure is influenced by several complex processes, such as:
To improve the invoicing percentage, you need to optimise all these processes.
But for the leadership, it’s difficult to communicate and work with these processes in detail.
It’s better to focus on the KPIs and ask for the outcome. And then let the organisation work towards the result on different levels.
The excellent leader determines the direction and asks for results. The poor leader interferes in all the daily processes, which are better handed over to mid-level managers or individual employees.
It differs from company to cowmpany which key figures are relevant. It depends on the company’s strategy and level of maturity.
In TimeLog, we typically see key figures relating to
Often, when a company starts working more actively with KPIs, they choose something like 6-10 key figures to work from.
For employees not used to working with KPIs, this is too many. Starting out with this many and no benchmark overly complicates insights, you get overlapping data, and it is challenging to communicate.
It is better if you choose a few key figures. This lets you spend the time and energy needed to get the entire organisation to implement them. And it helps you to secure alignment across the organisation.
The danger of micro-segmenting KPIs into many specialised key figures initially is that it can encourage the individual employee to spend a lot of time and resources on navel-gazing only the KPIs that are specifically relevant to their job function.
You could say that this can lead to higher specialisation for the individual. However, your organisation needs to maintain a collective focus on what matters for the company.
This can be lost if you start out implementing too many KPIs on the individual level.
Start by identifying your company’s key challenges and goals. Then, establish the key figures to measure if you’re overcoming these challenges and reaching the goals.
Crucially, your KPIs must reflect the goals and challenges you need to respond to the most.
If you immediately establish key figures for all challenges, you will quickly lose the overview of your primary challenges. This can leave you paralysed as you can’t respond to every problem.
If you choose to focus on 3 critical figures like invoicing percentage, illness % and active support cases, then use them on all levels in your company:
If your key figures are not relevant to the board, then you probably haven’t chosen the right key figures. In this case, you are lacking coherence between the tactical and strategic levels.
And if you detach your company’s strategic level from your employees' daily, tactical focus, your KPIs become irrelevant. You won’t be able to follow up on performance from irrelevant KPIs.
Make it a priority to include your employees in establishing relevant key figures while still using the needs of the board as the starting point.
The easiest part is to choose key figures. The hard part is to stick to these and continuously work with the same 3 key figures nine-month after you agreed on them on your management seminar.
But this is what it takes!
You need to keep focus on the key figures. Preferably every week. It does not matter if it’s during weekly meetings, in status emails, on a shared dashboard or in the CEO’s 5-minute breakfast brief Friday morning.
The important thing is to keep key figures present and relevant to all employees.
Both internally in TimeLog and with our customers, we have seen how patient insistence on one to three key figures can spur changes within the company.
Suppose you’re not using a solution with KPI reporting or visualisation features. In that case, it can often be a good idea to extract key figures from your business solution and transfer them to Excel sheets.
By gathering all KPIs in Excel, you get the overview that lets you cut away excessive numbers and only communicate what you need the organisation to react to.
It’s even better to visualise the key figures using graphs or illustrations, especially in a balanced scorecard that you keep visible for the entire organisation.
Don’t underestimate the power of visualisation. Sometimes, small changes, like showing the weekly progress instead of the actual numbers, can give you a better visualisation of the progress.
Here in TimeLog, we always keep our balanced scorecard clearly visible in the office, so both visiting customers and employees are up to speed with our current performance.
When you have determined your key figures, you then need to improve the underlying processes. You can do this in many ways, depending on what key figures you work with. Also, the character of your company and the maturity level must be considered.
You must stick to your KPIs and experiment to see what works.
This will give you a context between the processes in your organisation and your KPIs and provides the insight you need to act if your KPIs turn red.
Not knowing which processes are connected to the different key figures will leave you paralysed (or blind at best) in times when you need to act.
In my experience, simply having visible key figures, the figures themselves, will yield results. Having visible and clear KPIs often sparks a reprioritisation of focus within the organisation that takes place before you start optimising processes.
This alone is often a valuable change.
It is important to remember that if you measure your employees using specific key figures, they will adapt their behaviour accordingly. After all, this is your goal with having key figures.
But here, you must be mindful of undesired sub-optimisation. This is where employees adapt their behaviour so that it becomes a disadvantage to your company.
A good example comes from the (often tense) relationship between KPIs for sales and marketing, respectively.
Sometimes, you will see marketing boost their lead count, but sales is experiencing a decline in lead quality. Because marketing’s primary KPI has been number of leads, the effort has only been centred around generating a specific number and not a certain quality. Alternatively, if sales adapt to elevate closing rates, they might reject good leads from marketing to limit the number of open processes.
When each team only focus on their KPIs, they often work against each other and thus miss the overall goal – to increase revenue through lead generation and sale.
It can be a good idea with a degree of scepticism when implementing new key figures in your organisation:
The customer implemented the KPI External %, calculated from the employees' share of external hours.
The focus on this key figure was intense. Each week, the customer puts an overview of each employee's performance according to this key figure visibly on the wall. It was also used in staff development interviews as well.
This intense focus resulted in employees who no longer tracked their time on internal projects above 37 hours/week. If they didn’t report this internal time, they would gain a higher External % figure.
Obviously, this was not in the company's interest, as they didn’t get the real picture of internal project costs.
This example demonstrates that you must carefully choose your KPIs and keep possible employee behavioural change in mind.
Also, it shows that even good key figures cannot replace attentive management.
Some key figures have an integrated delay.
For instance, you only learn the invoicing percentage after you know the External-%. This makes it easier to guide behaviour according to External-% and makes it more relevant for the employees here and now.
If the company almost always invoice all external hours or seldom experiences problems with customers not accepting the project handover, it is better to use Extern-%.
Ensure you can pull your operational KPIs quickly so you and your employees can act upon them.
If too many of your operational KPIs are delayed, you might want to look closely at your business solutions. A widespread issue is that internal reporting is often done through numerous, complex spreadsheets.
If you compete in archery and want to be among the best in the world, you don’t focus on one goal one week and another the next.
You know you probably need to shoot 500.000 arrows before you’re ready to compete. You devise a plan for the next couple of years. You plan how many arrows you need to shoot every day. You measure, and maybe you expect to see results within three months. You keep it up, and you don’t give in.
It’s the same with companies. The tricky part is to
But if you want to become an Olympic champion – then that’s what it takes.