Management guru Peter Drucker once said, “What’s measured improves.” So true. You get what you measure when it comes to business performance.
The problem is that most teams don’t have clear key performance indicators (KPIs) to measure the success of their strategies and projects. Sure, they may have goals, but without clear KPIs, they don’t have a way to know quantitatively that they’re on or off track. As a result, many teams wait until the end of the quarter, or year, to assess their real progress. And by that time, it’s usually far too late for a course correction.
So how do you create the most meaningful KPIs for your team and organization? Here are three steps:
1. Define and quantify success.
KPIs should ideally be quantifiable so you know whether or not you’ve actually accomplished a goal or task. For example, your sales achieved, market share percentage, or number of new customers is fully quantifiable. If quantifying success seems too challenging, you can create “binary” measurements for a goal like “achieved” or “not achieved.”
For instance, if your marketing plan is focus on getting PR coverage in a major publication by the end of the year, you will either achieve the media placement or not. But if you’re going for multiple media placements, you might quantify this KPI by defining it as “three media placements by the end of the year.”
2. Diversify performance metrics.
When defining your KPIs, go for a blend of “leading” and “lagging” indicators. Leading indicators help forecast the future. For example, website visitors are often used as a leading indicator of future sales. The more visitors, the more estimated sales. Lagging indicators, on the other hand, are retrospective measures.
Revenue, for example, is a lagging indicator, since it’s a measure of customer behavior that has already occurred (through customers’ buying something). It usually doesn’t help predict or forecast what will likely occur in the future.
3. Build a dashboard.
It’s one thing to create KPIs, it’s another to use them on an everyday basis to get results. Without a dashboard that keeps your team’s KPIs front and center, it’s easy to veer off track. The best KPI dashboards provide real-time, visual status summaries of the most important KPIs, all in one place. Sure, creating a dashboard is a start, but it’s useless unless you use it with your team.
The best approach is to create a dashboard with your team, agree on who will update the data and how frequently, and then review the dashboard on a regular basis (daily, weekly, or monthly, etc.).
I also suggest mapping out your KPIs using a template. The company I co-founded, upBoard, has a template that’s useful for building out a set of KPIs. You can modify it to suit your team’s needs–for example, adjust the time frame or status indicators–or simply create your own.
KPIs are just like anything else: garbage in, garbage out. That’s why it’s important to take the time to step back, look at what you’re really trying to achieve, and then determine how best to measure it. KPIs have the ability to align teams, motivate, and push performance to new levels. The real power of KPIs lies in using them as a business process, not just as a static tool.
This article was originally published on Inc.com and has been syndicated for this blog.
Soren Kaplan is the bestselling and award-winning author of Leapfrogging and The Invisible Advantage, an affiliated professor at USC’s Center for Effective Organizations, a former corporate executive, and a co-founder of UpBOARD. He has been recognized by the Thinkers50 as one of the world’s top keynote speakers and thought leaders in business strategy and innovation.
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