By Tracey Smith
President, Numerical Insights LLC
As companies embrace the use of data for different purposes, sometimes it’s best to spend time determining or reviewing fundamentals like KPIs (Key Performance Indicators). Whether it’s measuring the success of HR, the success of supply chain, the success of your small retail store, the success of manufacturing or the success of one project, selecting the right KPIs is crucial.
KPIs are metrics that measure how well something is performing relative to its defined goals and objectives. That “something” can be as small as an individual and as large as the entire company. Correctly selected metrics and KPIs provide the ability to focus on what matters for success and business value.
Throughout 25+ years of analytics, I’ve taken a methodical approach to selecting metrics to ensure alignment with goals and business objectives. Admittedly, this takes time and effort, but without aligning metrics to business goals, how do you know when you are successful in your initiatives and how do you recognize problems? How do you keep your team aligned to your business objectives if the metrics you selected steer employees in another direction, or worse yet, in multiple directions.
Now, I have to say that one thing my customers really like about me is that I’m very practical. As with most things in the business world, there’s a difference between what you can do “in theory” and what you can do in the real world. Selecting metrics comes with several practical challenges. Here are just a few considerations:
- How many metrics make sense for us to follow? How many is too many?
- Is it worth the effort to produce every metric we would like to measure?
- What compromises will we have to make due to limitations of our data systems?
- What compromises will we have to make due to limitations with our chosen technology?
Most people struggle to select metrics and the end result is a huge report of… just about everything! Add to that the fact that KPI software vendors want to sell you a package with hundreds of metrics because that’s the only way they can charge you enough to justify their cost. Employees can’t focus on hundreds of metrics and too many metrics will confuse the message of “in which direction should we go?” The more metrics you have, the more likely they are to start contradicting each other in direction.
A focused set of metrics is worth its weight in gold. Just as we speak in analytics of aligning our projects to the “business questions we are trying to answer,” the same concept holds true with metrics. Begin with the business questions aligned to your strategic initiatives. Consider metrics aligned to measuring the success of those initiatives.
Until next time,
Tracey Smith is an internationally recognized business author, speaker and analytics consultant. She is one of the most highly respected voices when it comes to business analytics and HR analytics. She is the author of multiple business books and hundreds of articles in a variety of publications. Tracey has worked with and advised organizations, both well-known and little-known, on how to use data analytics to impact the bottom line. If you would like to talk to Tracey about consulting work or speaking engagements, please visit www.numericalinsights.com or contact Tracey Smith through LinkedIn .