Business metrics and KPIs are critically important for business management
H. James Harrington
Author of the book Business Process Improvement
I've been very fortunate to have been able to consult for a variety of businesses. One things that is often surprisingly missing are metrics (or the right metrics) .....
A quick business metrics analogy ... most of you know that I was an Air Force pilot earlier in my career. Early in the years when people first started flying they only had a simple plane. Wings and a stick. There were not the specialized dials, switches, and automation that we have today. Pilots would use the force of gravity (the push in the seat of their pants) to know that ground was where their seat was, and the opposite was the sky.
This flying by the seat of your pants was challenged as pilots began flying at night and during foul weather when they couldn't see. And the pull from gravity on their seat could play tricks often resulting in a less than successful landing. Flying by the seat of your pants was then replaced with dials, gauges, and more automation to make the outcomes much better.
Just like in flying, business metrics allow the business managers and leaders to understand the direction of the business -- both positive and negative.
Not surprisingly, for those companies that did not have the right business metrics / KPIs, they were often headed in the wrong path (and didn't realize it).
Just as with having no business metrics, having too many metrics can have the same implications. Years ago when I was an executive at a fortune 100 tech company we held a business review with the IT / development team. We had 4 pages of metrics (doesn't sound too bad eh?) w with each page having about 30 metrics (all in font 4ish). It was an uncomfortable eye chart. You couldn't tell which business metrics were important or less important. Or if I should even pay attention to any.
As a business leader, you know that operational effectiveness and growth is important to the success of your company. Just as important as your business strategy is.
Good metrics are essential to understanding how your company is performing and whether or not you're on track to reach your objectives. Your key metrics should always be directly related to your financials -- revenue and profit.
Most companies focus on their financials and how metrics support those. However, thekey point is to choose metrics that clearly indicate where you are now in relation to your goals.
When you are tracking business metrics must be reviewed based on trends not just a point in time. Trend-based busines metrics help you understand directionally where you are going. Its also helpful to look at some metrics from the previous year -- for example the revenue from October for this year compared to last year.
Additionally business metrics must be actionable -- in other words, if the metric is headed in one direction you may specifically choose to keep doing what you are doing, versus if it is going in another direction you may need to do something, change something, or stop doing something.
There are a lot of different business metrics to consider, and it can be overwhelming trying to keep track of all of them. For simplification I've documented a few core metrics. However, in my next post on business metrics, I'll share a method called business metric mapping that helps you really align your metrics to focus on the things that count.
Monitoring the right business metrics is essential to understanding your company's performance and growth. By tracking the right metrics, you can make sure you're on track to reach your objectives and continue growing your business.
If you have questions on the metrics or want to dive deeper leave a comment or contact me.
a Romanian-born American engineer and management consultant. He was an evangelist for quality and quality management, having written several books on those subjects.