My post two weeks ago about how Big Commerce manages its key performance indicators—or KPIs—drummed up a flurry of comments and questions, so I decided to dig in one level deeper. I spoke with Patrick Thean, CEO of Gazelles Systems, a company uniquely dedicated to helping companies define and manage their KPIs.
Over the course of an hour, Patrick broke down for me some of the key challenges he and his team encounter helping companies—large and small, domestic and international—identify, measure, and manage their business with key metrics. Read on for what I view as his most critical points, plus an exercise to set up the right KPIs for you. For even more information, check out Patrick’s blog.
The reason well-defined KPIs give you an edge is that they allow you and your team to start adjusting your approach early. Imagine you have launched a new product, the success of which depends on achieving a certain conversion rate (e.g., you need 10% of website visitors to ask for more information), so you start tracking this daily. By week four, you realize you are only getting 5%. You can brainstorm a "corrective action plan," as Patrick calls it, while you still have nine weeks left in the quarter. Your competitor, tracking revenue, does not realize until the quarter’s end that something is wrong. Better metrics mean a quicker reaction, and they also mean you win.
Measure what you can control.
Many companies track inputs like new home sales or interest rates to help them predict the future. While important, this practice does not measure your people’s performance. Instead measure things they can control, such as the number of client meetings scheduled, to focus them quickly and early on activities that matter.
Peel the onion.
Identifying the right indicator for your company is not straightforward. "Every company is different so their KPIs should be different," Patrick explained. To get them right, you might start with the obvious (that is, requests for proposals) but then peel the onion, exploring the causes and effects to get to the most important leading indicator for you. One of Patrick’s clients wanted to expand more rapidly. The company thought about obvious metrics like revenue, new markets and offices opened, cities served, and more. But when they thought it through, they realized that what constrained them from entering new markets was none of these obvious things but rather their bench strength: Did they have managers ready to lead a new market when they wanted to open one? By switching their key KPIs to bench strength, growth started to accelerate.
Define what is "red."
Patrick asks clients, once they have set their KPIs, to define three levels: "red" is your point below which performance is unacceptable, "green" is your goal, and "super green" is your stretch goal. Everything between "red" and "green" is considered "yellow."
Taking these insights, and bundling them with the "windshield, dashboard, rearview mirror" concept I introduced two weeks ago, I’ve created a 20-minute strategic exercise that can help you nail down the unique KPIs for your business that will generate clarity, focus, and growth.
1. Describe you goals for this year across three levels:
a. Windshield: What is going to be coming down the pipeline (e.g., number of prospects in your network)?
b. Dashboard: What activities do you want to be happening (e.g., number of clients being served)?
c. Rear mirror: What results do you want to achieve as a result of this work (e.g., revenue)?
2. For each, ask what (up to three) KPIs do you want to track? Peel the onion and ask, is this really the right KPI?
3. For each KPI, define "red" (the number that defines unacceptable), "green" (your goal), and "super green" (your stretch goal).
4. Stop and ask, "If we hit all of these ‘green’ KPIs, will we be excited, energized, and inspired?" If you answer "yes," then get to work. If not, go back to step 1 and repeat.
I’ve created a one-page worksheet to help you do this. There are two ways to get it: email me at email@example.com for a copy (I will also add you to my newsletter list, but you can always unsubscribe later if you want), or wait a week or so for me to put it on the "tools" page of my website.
[Image: Flickr user Stephan van Es]