There is a normal way to use Key Performance Indicators, and a way to get a bit more “juice” out of the process. The “juicier” way brings KPIs into the strategic planning and alignment process. Let’s take a quick look at both.
KPIs, the Normal Way
If you’ve been through my other posts on implementing KPIs, you know that at their heart, KPIs are simply measures or metrics. Done well, they focus not only on outcomes, but also on the actions that lead to positive outcomes.
In this way, KPIs are the most critical and vital data points about the business. Indeed, part of the best value KPIs provide is that they clarify so much information about the business in so little time. But left as data points, they are just that… just data points.
KPIs as Alignment
There is one critical function KPIs provide on their own as simple data points: focus and alignment. By identifying the most critical data points about the company, everyone is automatically clear about what matters, how it’s measured, and where to focus effort.
Perhaps it’s just my experience, but the last time I purchased a vehicle, it was very clear what my sales associate was focused on. You may be thinking, of course, his focus was “making the sale.” But it wasn’t. I don’t know whether it was just this particular brand or this particular dealership, but someone finally realized a truism: If I’m present in a car dealership, chances are great that I want to buy a car, so stop worrying about trying to sell a car, and start focusing on discovering and addressing my actual concerns.
The sales associate took pains to uncover my real concern: the model I wanted wasn’t going to be in stock before my lease ran out. He arranged a loaner, at no cost to me, for whatever duration until the model arrived, if I’d agree to the sale.
Fast-forward three weeks of free vehicle rental later, my sales agent didn’t need to remind me of what I already knew. Following the sale, I would receive a survey from the automaker about the level of service I had received from the dealer, and high marks are critical. How do you suppose I scored my dealer experience?
Good KPIs align attention, behavior – everything – toward what is important.
KPIs as Strategy
But we can take KPIs further and use them as tools in the strategic planning and execution process simply by adding goals. I want to be careful here to draw a distinction.
In my method here at Pivot Habit, if you use my worksheet and what I outline about creating a Performance Budget, you will in fact create monthly “Plan” numbers for every month of your planning period, and for every KPI. By default, this is nothing more than “forecasting.” That’s not the same as strategic planning or goal setting. Let’s draw the distinction.
A forecast is simply a prediction of the future trend given current conditions and effort. For example, if last year you did revenue of $10M and you’ve been growing at about 10% per year, you might forecast revenue of $11M this year and break out monthly plan numbers that show that. That’s your forecast.
Strategy and goals come into play if you’ve got something new up your sleeve this year that means that $11M forecast doesn’t cut it. For example, maybe your strategy for the new year is to introduce a new product line. Your research shows strong early demand, and you’ve set a goal for $1M of new revenue for the first year.
You might choose to represent this revenue as it’s own “New Revenue” KPI, wrap it in to overall revenue and map out $12M in revenue for the year, or some other way. The point is now you’re not just forecasting against current conditions. You’re adding in goal setting which is all about changing conditions for an improved result.
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Occasionally, I’ll see a client define a really solid set of KPIs. No, really – a really solid set where all the KPIs are spot on, everything matters, there’s nothing missing. Everything is exactly right.
As opposed to the previous answer, it’s also easy to just go overboard and over do it when implementing KPIs. It’s easy to want to measure everything under the sun. You can convince yourself that you really do need every single measure and metric. But the question is do you really? For most of the clients I work with I provide the gentle reminder that they’ve been working “okay” this long without KPIs, and true, while using KPIs will greatly accelerate performance, it doesn’t follow that they absolutely without a doubt have to have every KPI under the sun.
One of the biggest reasons for too many KPIs is adding in measures or metrics that quite simply just don’t matter. For each KPI, it’s important to ask two questions:
This point and the next are related. Your first pass at establishing KPIs will not be your last. Based on my experience, the likelihood is high that you will forget at least one KPI that, as it turns out, is extremely important to the business. Sadly, we’re human and it happens. Let it happen. Get started with what you have and review to add what is critical yet missing.
It is very common that a few KPIs you really want turn out to be challenging to collect for some reason. Great – get started without them. Do not wait. Mark my words, if you are told the data will be available in two weeks, two months will elapse. Do not wait. Get started with what you have and tune/add/substract KPIs later. Perfection is the enemy (said to you by an ever-recovering perfectionist).
Create Plan numbers for your KPIs. For every month. Make it so that you have planned performance that you can review every month in order to checkpoint performance.
If you do not establish a 
Whereas 
This is not a time for qualitative indicators. KPIs are numeric measures or metrics. Actual numbers.
This was addressed in the article on Measures and Metrics at length. In most cases when you’re tempted to use a measure, you can work a little more and find a metric that will provide the same and additional information. Metrics are usually preferred because they tend to lead to better goal setting and therefore better performance. However, I have often found that sometimes a simple measure just makes more sense. So do what makes sense to you.
Do focus on a good mix of both Performance Metrics and Outcome Metrics. You should hold as your goal to discover all or almost all of the Performance Metrics that explain all or almost all of your Outcomes. Nailing down what leads to excellent performance can have multiplying results on the business in very short order.
It’s easy to get carried away creating KPIs. Remember that you’re going to need to gather all of this data at least monthly and some you’ll want to look at weekly. Give preference to a lean set of numbers that tells you the most about your business for the least amount of work.
Even if you’re a solo or a small 2-4 person leadership team, it helps to think of your business as having “departments.” This helps you think of the critical facets of your business, the roles you need to fill, and the critical aspects you want to measure.
First, take a pass through each department and just jot down some metrics you think might make good KPIs. Don’t get hung up with anything like numbers or definitions at the moment. Just move quickly, making not of what comes to mind.
If you look at the sample above again, you’ll see I’ve got several columns that, taken together, serve to define the KPIs in a very specific way. Suffice it to say I’ve learned a few things through experience. For example, sometimes when you’re defining a KPI, actually defining it (for example, does Revenue include returns and credits? Or do we subtract out returns and credits?) may take some discussion. Without fail, if we don’t write down what we decided, as little as a month or two down the road, we forget what we decided and we have the same discussion again, and again, and again.
When you choose the best KPIs and stay focused on the critical few, one of the best benefits is the ability to see more information about your business than you ever have before, and do it in less time. My clients enjoy having more information and confidence about their business performance, while having fewer, shorter meetings about business management.
It’s a natural human tendency for managers to think previous quarters were either much better or much worse than they actually were. These false memories can drive reactionary decision making that doesn’t serve the business well. Creating, planning, and recording results against well-chosen KPIs creates a track record of performance recorded in black and white.
KPIs provide a focusing function. The process of identifying KPIs is itself a focusing exercise. In creating and using KPIs, you’re extracting the most information from your business in as few data points as possible. That’s a powerful mechanism for keeping yourself and the leadership team informed and ready for action.
Especially when paired with a 
The focus and clarity provided by KPIs also tends to make managers less reactive and more consistent. That is, managers who are otherwise intuitive in their management style or intuitive through lack of data suddenly become much more data driven. That is not to say intuition doesn’t play a role. Intuition has an important place in business. It is simply to say that KPIs provide an excellent basis for data-driven decision making, and that tends to increase the predictability and consistency in decision making.
To use a metaphor, the concept of a “common business language” is the concept that everyone in the band is playing from the same sheet of music. When everyone is looking at the same key indicators, it takes far less time to determine how the business is performing and what to do about problems. It’s as if the business has it’s own “shorthand” for communicating within and between teams. We know what matters to each other and to the company as a whole.
