As a business owner how do you know what is going to happen in your business?
What do you use to monitor the future effectiveness of your team?
Have your finger on the pulse, know whats going on, measure everything I hear you cry!
Well let me bring good old Key Performance Indicators (KPI’s) out of the dusty recesses as one of the most powerful tools at your disposal when used properly. Unfortunately, I have found they are also one of the most mis-understood tools. Often they are relegated to reporting on what has happened not what is going to happen.
So let’s look briefly at how to use forward looking KPI’s
In any business there are a bewildering number of performance indicators- but the important thing is to choose the ones that are KEY. Those that if monitored correctly will give you all the information you need to check on the direction of the business. It is so easy to focus on the result, perhaps a number or ratio, rather than what the indicator is telling you. It is monitoring the TREND that is all important. Is the trend stable, improving or declining. This allows you to impact the future by spotting a change in the trend at the earliest opportunity so that appropriate timely action can either reverse a declining trend of maximise an improving trend.
The engine management system in a modern car takes thousands of readings of the performance of your car’s engine every minute. By monitoring the trend of results it is predicting a future problem and only warns you via the dashboard warning lights when something needs checking. Yes there may be gauges that constantly give details of the current revs, current speed, current water temp etc etc. but we rely far more on warning lights to alert us of an important pending event. Once alerted a trip to the garage will allow a mechanic to look at all the other data monitored by the management system to identify what has happened.
In a car management system the warning indicators are fixed however in business we have the choice of what to monitor and there is the rub.
Here’s my business advice to you:
Measure those things which affect the future outcome you want to impact. As a very simple example you may want to increase sales. This is the desired future outcome but to get that increase you need to increase the number of orders and average sale. By applying strategies to these two components and monitoring the impact on the trend you will quickly identify which strategies are effective and which ones to drop.
Review what you are currently measuring in your business today and ask what the KPI is truly telling you. Are you constantly trying to drive the business forward by looking over your shoulder at the past?
Maybe it would be better to see what is up ahead.