HOW TO CREATE A HOLISTIC KPI STRATEGY THAT PROMOTES SUCCESS
Numbers may not lie, but they do not tell the whole story, especially when based on incomplete or outdated information. For decades, leaders struggled to identify how specific operations influence successes and failures. They sought to measure performance and quantify progress against their goals. However, defining Key Performance Indicators (KPIs) that measure success and proactively expose pending disasters proved challenging. The metrics rarely provided a complete picture or revealed necessary course corrections. Isolated metrics deliver limited value. Therefore, growing organizations need a holistic KPI approach and technology that collects strategic metrics and presents them in a meaningful and timely manner. In this guide, we discuss how to create a holistic KPI strategy that promotes success.
After all, fueling long-term profitability requires more than solid sales. Hitting revenue targets may warrant celebration, but stellar customer relationships sustain the business. Soaring sales cannot compensate for rising customer churn since acquiring a new customer costs five times more than keeping one. In addition, organizations must monitor and promote employee engagement or risk declining customer service and productivity. Technology matters as much as human interaction. Inefficient, manual processes frustrate workers who want technology that streamlines routine processes and delivers instant insight.
Digital transformation promises to automate processes and enhance productivity. However, companies must set KPIs to evaluate the initiatives during and after the implementation to ensure they improve operations. This guide examines the different types of KPIs and how to develop an outcome-focused KPI strategy.
Seize the Power of KPIs
“If you can’t measure it, you can’t manage it.” The lack of comprehensive metrics jeopardizes long-term success. KPIs serve as the most influential metrics a company can pursue because they quantify the performance of an individual, system, project, department, or organization and present snapshots of relevant metrics. KPIs equip companies with the meaningful insights they need to spot improvement opportunities, design future goals, and manage progress. They also align employees, resources, and systems to strategic objectives, with each one contributing to a tangible business benefit.
Profitability rises and falls with financial goals, especially revenue generation and cost reduction. Product-centric businesses typically delineate revenue goals and financial performance into multiple metrics, such as new business, upsells, average deal size, product line, and sales representative, to determine what’s working and what they can improve. Other businesses track service-related metrics, such as availability, response time, and uptime as well as financials, like collections. Non-profits use KPIs to track donations, grants, working capital, and service metrics. Since controlling expenses also increases profitability, companies set spending goals and analyze metrics to determine the best use of their resources and how to streamline services to maintain their desired profit and loss ratio. Consequently, company KPIs are intrinsically linked to profitability measures.
KPIs can help organizations compare their performance with their competitors. They contrast sales, expenses, product development cycles, market share, customer churn, and more. More importantly, companies can leverage KPIs to analyze the factors contributing to each success factor and look for improvement opportunities. The right KPIs enable them to capitalize on market opportunities, minimize shortcomings, and pool resources behind competitive differentiators.
Every person, process, cost, and system affects productivity and warrants measurement to understand how each contributes to the team, departmental, and company KPIs. The metrics should consider technology’s evolving impact. Many organizations are turning to digital transformation to revamp enterprise-wide systems. They anticipate significant productivity gains, as technology platforms, like ERP systems, automate business processes and integrate workflows. But these results are not guaranteed. Organizations must monitor each implementation phase and cost with targeted KPIs or risk investing in ineffective solutions. They must also evaluate pricing models to avoid overspending on licenses. Consumption-based systems, like Acumatica, prove the most cost-efficient.
KPIs are critical to attracting and supporting clients at each stage of their lifecycle. Marketing leads signify sales potential while sales pipeline metrics indicate potential demand and revenue. KPIs also ensure sales and marketing activities resonate with the target customer by analyzing prospect interactions. Customer management tracks customer satisfaction and support issues, enabling businesses to reallocate resources to improve service before relationships falter. KPIs include customer lifetime value, retention, customer acquisition costs, and customer revenue growth.
Understand Different Types of KPIs
Companies should categorize KPIs by type to give appropriate weight to each one and understand their impact without reaching misleading conclusions. For example, they could miss improvement opportunities if they do not discern how lagging KPIs affect leading metrics.
Organizations should choose KPIs that demonstrate progress and inform decisions. With the right technology, managers can review and act on select KPIs daily or in real-time (like available inventory) and others weekly, monthly, or quarterly. Exception reporting keeps managers abreast of significant changes by alerting them when a KPI reaches the defined threshold.