One common problem that business owners encounter is determining if their company’s current performance is on track with their long term business goals. They need to have some sort of data to show them if they are on the right track. This is where Key Performance Indicators (KPIs) become essential when running a business. This data will give you an idea how your company is doing in the areas that matter and if it is line with your future plans and goals for the business. Think of it as a measuring and planning tool for your business.
Just like everything in business, there are challenges and this includes setting up your business’ KPI. The challenge is finding right and meaningful measures. Without a well thought out KPI, it can become vague and useless – wasting time, effort and resources.
Generic KPIs
You might be tempted to use KPIs that are used by other companies with the idea that if it worked for them then it should work for you. This type of thinking is okay if it involves best business practices or brilliant business ideas but not with KPIs. Even if two companies are engaged in the same line of business, they are still different in some way. You might also adopt “off the shelf” KPIs that other companies use that worked for them. You are basically measuring something that may not have an impact in your own business. The problem with this is that they are generic and may not be a good fit for your strategy and goals. Come up with your own KPI that is in line with your current plans and you will see better results.
Linking KPIs to Incentives
Linking KPIs to bonuses or incentives has its advantages and disadvantages. On the positive side, it does make your employees work harder to achieve their targets and receive that sweet bonus. On the down side, it prevents the true purpose of the KPI. That is to let the team members know where they are in the company in relation to their goals. It stops being a compass and can be manipulated for personal monetary gains. Be careful when linking these two. Provide a good enough incentive but not too much that will encourage manipulation. Striking a good balance is the key.
Not Using Your KPIs
KPIs are valuable as they can provide facts that you can use when making business decisions. The biggest mistake that you can do with KPIs is not using them. You might have come up with the best designed KPI that fits in perfectly with your company’s plans and goals but if you are not acting based on the actual data then you just wasted a lot of time and effort. If you have the information, use them to your advantage.