If someone blindfolded you and then plopped you down in the middle of the desert and asked you to leave the desert without using a GPS device, could you do it? Probably not. If you don’t know where you are, you can’t know where you’re going, right? Moreover, you can’t even know whether you’re headed in the right direction.
Running a business and managing a workplace without KPIs, or key performance indicators, is a lot like being blindfolded and dropped off in the middle of the desert. You can’t know where you are, let alone where you’re going, if you don’t have intelligent, accurate, and effective KPIs. Here are five reasons why tracking KPIs is helpful in the workplace.
KPIs Help You Monitor the Health of Your Workplace.
KPIs offer a way to monitor your company’s vital signs. While there is an infinite number of KPIs you can choose to monitor that will tell you valuable information about your company, it’s essential to select a few crucial ones for you and your team to focus on so that you can affect real change inside your business.
Generally, there are four different categories of KPIs (that apply to all businesses): employees, customers, processes, and revenue. You can also think of these KPIs as falling under four different components of the business: financials, customer service/satisfaction, business processes, and business strategy. If at any point one of these metrics slips or suddenly moves in one direction or another, you then know there is an issue with one of the four vital components of your business, and you can jump in to address it immediately.
KPIs Can Help You See Progress Over Time.
If you’re smart about the KPIs that you choose to measure and monitor, you can see where your company is making headway over time. These are KPIs that can be measured over periods of time—either short or long, depending on your business. Things like revenue, gross income, the number of employees you have, and the number of locations you have are all examples of KPIs you can use to see progress over time.
Think of these KPIs the same way you think of monitoring your physical wellness by regularly weighing yourself. If the number on the scale goes up or down unexpectedly or significantly, you know that you have to change your course in order to get back on track to your goals. Over time, the scale may fluctuate a lot, but the trend line is what matters. In a similar way, certain KPIs can really help you see what kind of progress your business is making over time. These metrics are really valuable because they can help you make course corrections when needed, rather than later, after a KPI has changed significantly. Such metrics can also help you see trends well before those trends become troubling and help you make informed decisions about what needs to change to keep your business goals on track.
KPIs Help You Make Adjustments and Stay on Track.
This brings me to my next point: KPIs help you make large and small adjustments to your business in order to stay on track. Consider the health example I gave above.
Like our bodies, businesses can be slow to respond to different influences, inputs, and outputs. So if you start eating pizza for all your meals, you might not see an immediate jump in your weight, but you might start to notice that you have less energy. If you keep eating pizza for all your meals, it’s highly likely that within a week or two, you’d start to see a steady increase in your weight and blood pressure. While some fluctuation in those measurements is normal, if something suddenly gets way out of whack from the usual trend, you know it’s time to take a closer look at what the cause might be.
Similarly, KPIs help you know where you are on the path out of the desert (if you will). They help you know whether your business is headed in the right direction toward your goals and whether the various levers you may have pulled to keep your business healthy and on track are actually working in the way you expect (because they don’t always!).
KPIs Help You Identify Larger Patterns.
Data can be a precious tool to use, but only if you measure consistently over time. One single data point only tells you what is going on at that moment in time. You need to keep track of data trends over time to get a significant idea of what the trends might be.
Keeping an eye on KPIs over time can lead you to see larger patterns (like seasonal or yearly cycles) based on what’s happening in the economy and what’s happening in your business during certain seasons.
– Angela Roberts, CEO of U.S. Money Reserve
KPIs can even help you see a downturn coming in your specific sector and help you shore up your business to deal with it. When you have more data, you can start to plan for the lean days while capturing as much business as you can during the go-go days. You can also make hiring decisions based on the patterns you see. Knowing when to hire seasonal or temporary staff can stave off significant delays for customers and make your business run more smoothly.
Additionally, using KPIs to identify larger patterns can help you know when the best time might be to do things like update software or security processes, conduct training for the whole company, or explore new opportunities or locations for growth.
KPIs Can Help You See Opportunities Before They Arrive.
If you keep track of the right KPIs for your business, you may be able to use that valuable data to see opportunities (and tackle problems) well before they occur.
Say, for example, you start to notice a revenue dip. Upon further investigation, you find that it’s being caused by a sudden decline in sales. While that can be a harrowing thing to notice, it doesn’t mean the end of your business. In fact, it could present a new opportunity for growth and innovation.
Maybe your product needs an update, or you need to hire more customer service reps to make more calls. If your KPIs track the correct data, you can then start to pull different levers in your business to change what’s happening. You can then get a quick read on whether or not those levers have worked to change the course of your sales slump. Once you find the right lever (and can measure and track it through smart KPIs), you can ensure that your business will continue to grow and thrive, even when faced with a momentary sales slump.
Why Do KPIs Matter?
KPIs are a way to benchmark the status of your business at regular intervals so you know whether you’re progressing toward achieving your company’s goals. KPIs can and often do vary widely based on what your business does and what you need to measure. Think of them like health indicators for the future of your business.
In order to determine which KPIs you should focus on in your particular business, you must understand what the overarching goals of the company are and how each part of the business works together to achieve those overarching goals. Finding the right KPIs to focus on takes research, analysis, and a true understanding of what you are trying to achieve.
There are, however, a few hard and fast rules about KPIs. For one, KPIs should be clear and measurable at regular intervals no matter what kind of business you run. Your KPIs also should be well communicated to the team responsible for hitting and tracking them. Finally, a good KPI should be a critical piece of achieving your goal. Without a clear goal, you cannot set up clear and measurable KPIs. It can pay to think of KPIs as SMART goals for your business.
The Bottom Line: Why KPIs Matter for Leaders
KPIs matter because they give you insight into the health and well-being of your business and your staff. Measuring the right KPIs can make or break a business and give leaders the data they need to make any necessary course corrections. Tracking the right KPIs can help leaders retain top-performing talent, identify learning opportunities among staff, solve problems, and go after opportunities. KPIs are incredibly valuable tools to help you manage your business in both the long and short terms.