Excellent Performance Management and KPIsposted on 20-3-18-Wed 12:45
Leaders and managers often are discussing the company's performance and how the individual, team, and overall performances are operating towards the company's objectives and targets. If you want to run a successful business or organization, it's crucial that you know how to measure performance and how to set the right KPIs according to your company's goals. Performance management is an important process that will help you set the right activities and outputs to reach your goals effectively and efficiently, to avoid failure.
What is Performance Management?
Performance management is a business management tool that helps managers observe and evaluate the processes and actions of employees.
This tool is used to create an environment where employees can perform the highest level of their abilities to provide the highest quality of work in the most efficient and effective way.
The performance management program helps managers, teams, and individuals to have full insight into expectations, goals, progresses within the company, and how individuals perform towards the company's overall vision.
Performance management sees employees in the context of the broader workplace system, and, in theory, managers and leaders seek the absolute performance standard.
How Performance Management Works
Creating and measuring goals, objectives, and milestones are the traditional methods used in performance management. Within this program, managers strive to determine what efficient performance looks like and to develop processes that will measure the performance towards the company's high-level goals. Managers don't use the traditional method of reviewing processes by the end of the year. Instead, they started measuring processes more frequently, and in this, they find the opportunity to learn from every interaction.
Performance management is an excellent tool for adjusting workflow, overview, and set new actions and make strategic decisions that will help employees accomplish their targets. On the other side, this corporate tool will help the company achieve its goals and perform optimal quality.
For instance, the sales manager gives to his team objective revenue volumes that they must achieve within a given period. Within the performance management program, besides the target, the manager should offer guidance gauged to help his team succeed.
Why Performance Management Matters
When the focus is set on constant accountability, creating a healthier and more transparent workplace, and emphasis on frequently scheduled meetings, the overall communication gets much better. Performance management establishes rock-solid rules, and everyone has a crystal clear understanding of the expectations, which will obtain a workplace less stressful.
Performance management is an excellent system because managers won't be handling the talks with employees to tell them they aren't performing well enough if the system works, employees will realize this by themselves.
Types of Performance-Management Programs
There aren't general templates of performance management programs, and they are usually customized for a specific business, company, or organization. Still, there are certain universal elements that all of the programs include:
- Adjusting employees' activities with the company's mission and goals. Every employee in the company should understand how their individual objectives contribute to the company's overall accomplishments.
- Generating specific job-performance outcomes. What influence should my task have on the company? How should I associate with clients, colleagues, and supervisors? What procedures does my role involve?
- Generating measurable performance-based expectations . Employees should give facts into how success is measured. Expectations incorporate results— the goods and services an employee performs; actions —the processes an employee uses to make a product or deliver a service; and behaviors —the attitude and values an employee expresses while working.
- Determining job-development plans. Managers and employees should determine a job's obligations. Employees have to learn new things and upgrade their knowledge and skills for the company's better performance.
- Meeting frequently. The old fashioned method of meeting and evaluating annually is not good enough. Managers and employees should gather more frequently and actively discuss, evaluate, and talk about the performance of the company's progress.
What are KPIs and How to Define the Right Ones?
Even though KPIs are widely spread in modern business, they are often overused or totally misunderstood . If KPIs are managed in the wrong way, their presence is useless or even fatal for the business. Understanding what KPIs are, how to define and use them right can make a massive difference to your company, business, or organization's success as they are the direct indicators of the performance.
KPI stands for Key Performance Indicator, and it represents the crucial sources of data that will help you understand, track, and evaluate how effectively your business, company, or organization is reaching desired targets. Without the right set of KPIs, the whole process of tracking your business performance is useless.
The right KPIs are linked to your business objectives, and they are designed to provide an insight into how your business is moving towards fulfilling long-term company goals. The main word in KPI is "key" because every KPI should be linked to a specific business goal with a performance measure. People usually confuse KPIs with business metrics. Even though they are used in the same context, key performance indicators and metrics aren't the same things. Key performance indicators are determined according to the most crucial business objectives. Defining KPIs is about matching business objectives to internal processes. There are many KPIs examples you could find that would be useful for your business, but try asking yourself tough questions about your business, that way, you will be able to determine your KPIs a lot easier.
KPI vs. Metrics
Despite that key performance indicators are often confused with metrics, there is a clear difference between these two. KPIs are the key measures that have the most significant impact on your company's performance towards success. They provide you with in-depth insight into what your company needs to measure, track, and evaluate to accomplish long-term goals. Not all measures are the most important ones and the ones that have an impact on your long-term objectives. Usually, five to ten key performance indicators are the crucial metrics that will show you how you're performing towards your higher goals.
Metrics follow and provide you with an insight into the performances of your processes. They aren't the most important ones, but they still add value. They are focused on monitoring processes that are more like everyday tasks and not the crucial ones that will show you the overall health of your business, company, or organization and define your strategy and main focus.
Keep in your mind that while all KPIs are metrics, but not all metrics are key performance indicators!
Example for comparison KPIs and metrics:
A great KPI example is to increase new buyer trials by 15% by the end of the year, describing the growth of 15 trials per week to 18 trials per week. This KPI has a specific strategic goal.
Organic inbound website traffic is an excellent example of metric, it's valuable, and it helps feed your strategy goal, but it's not clearly defined and linked with an income like KPIs are.
With KPIs, your company will be forced to define the performance measures that will outline activities that will help you accomplish your long-term goals. KPIs are constituted of four key attributes:
1. Define Your Measure – All KPIs have to determine precise measures. The more descriptive measures are, the better. You can divide performance measures into four categories:
- Activity Measures – As their name says, they measure activities, and they can include a number, percentage, currency, and activities. For example, the number of leads in your pipeline would be an activity measure.
- Outcome Measure – This KPI measures growth towards a defined goal, and it's usually expressed as a percentage of growth, change, or result from a particular outcome. An excellent example of this key performance indicator is the % increase in revenue for the entire year.
- Project Measure – This KPI measures the progress of a particular or all projects in total. It's often expressed in percentages of complete activity or process. For example, 20% complete to complete 35 strategic plans.
- Target Structure – It describes a numeric outcome against date, for example, $30 000 in revenue, by the end date of a strategic goal.
2. Define Your Target – This is a numeric value that is set to be achieved. Targets require to match your measurement model and due date. For instance, if your measure is in percentages, your target also needs to be expressed in percentages, and if your measure is in numbers, your objective should also be like that.
3. Outline the Data Source – All KPIs have to come from a clear and trusted data source. It would be best if you make sure to articulate where you're pulling all your data from, so everyone has the same information.
4. Define an Owner and Tracking Frequency – KPI must have a well-defined owner and tracking frequency. The person that is accountable for taking the data should be updating it regularly, usually monthly.
Checking are Your KPIs the Right Ones
Defining the right KPIs isn't quite so easy, so here is a helpful checklist to evaluate if you have the right key performance indicators:
- KPIs provide you with an insight on whether your strategy is working successfully towards your long-term goals.
- They will point out the most important things your team and the entire staff of your company needs to do to ensure success.
- KPIs will level-up the communication, and they will help you provide a common, understandable language for all your employees towards the performance and growth of your company.
- They will help you to measure the right things!
- KPIs are verifiable and guarantee accurate data.
How to Choose KPI Dashboard Software
When you're choosing the right software program for your KPI dashboard, there are three main questions you need to ask yourself to determine the best possible software solution for your company or department.
What are you going to track with your software?
There are various KPI dashboards, from simple and free dashboards that have the feature to track only a limited number of KPIs, dashboards that are following specific methodologies or more complex dashboards that come as a part of an extensive Businesses Intelligence.
Depending on what you'll need to track, you will pick the suitable software. If you are looking to follow only a few most critical KPIs, a simple free dashboard will do the job for you. If you will need thousands of metrics for your KPI, and many data integrations, BI solution with the incorporated Dashboard is a better choice for your business.
What features does your business require from the Dashboard?
Most software solutions have a similar set of primary features like full-screen modes, various designs of charts and diagrams, integrations, and so on. But specific features such as extra analytics tools, optional manual data insertion, and KPI reports aren't always included, but they're incredibly beneficial, especially after certain stages of development when they even become crucial.
What is your budget?
You know how much you can spend on the KPI dashboard software, but you will need to do some research to pick the best deal for the price listed. Almost all KPI dashboard tools are delivered through an online platform, with different annual and monthly subscription plans, depending on what they offer. Online platforms offer many economical solutions in terms of hosting, hassle-free maintenance, and automated feature updates, but the costs may rise eventually. Some vendors provide all-inclusive features for a specific price, while others charge additional fees for additional data storage, extra users, per number of KPIs and dashboards.
You need to determine which offer is the best, depending on the price and features ratio. Leader providers for the key performance indicators dashboards are Dundas, IBM, Microsoft, Oracle, Qlik, and Tableau. However, there are also other, more affordable solutions such as Klipfolio, Geckoboard, SimpleKPI, Tableau, and they still have exceptional features.
You will be able to manage KPIs much better if you remove the clutter and focus on the KPIs that matter the most. If you're not quite sure how to distinguish the crucial ones from the rest, think of five processes or performances you want to check as soon as you arrive at your office. Key performance indicators aren't your high-level goals. They are guideposts for accomplishing high-level goals.
For excellent KPI management, you can rely on these five principles:
- Determine the KPIs you need to manage
- The beauty and curse of specialization
- Relating the why and how
- Knowing KPI dashboards
- KPI pairing for more competent management
Determining the KPIs You Need to Manage
The best way to determine the right KPIs for your company, business, or organization is to tie it to your long-term goals, established using the SMART method. The SMART method includes answering these five questions:
- Check if your objective is Specific?
- Can you Measure development towards that objective?
- Is your objective realistically Attainable ?
- Is the goal Relevant to your company or organization?
- What is the Time-frame for accomplishing this objective?
After you define your key objectives, you should focus on identifying which KPIs are most crucial for you to observe them in order to measure performance that will lead your business to success. Think about the five most prominent indicators you want to check as soon as you arrive at your workplace.
The Beauty and Curse of Specialization
When managers organize their teams into separate departments, assigning core metrics for each one of them is the perfect way to focus on things that matter the most. This is the beautiful part, but the curse of specialization is in the possibility to lose other valuable cross-department KPIs and overall company's goals.
For maximized KPI management, strike a balance between department focus and cross-department teamwork.
Relating the Why and How
When you're managing KPIs, the crucial part is to determine the balance mentioned above and communicating the why with how. Your team needs to understand not only what they are doing, but also why it is essential. That way, they will not blindly follow the metrics, they will understand the overall significance. Your team will be able to have a better insight into opportunities, and if the KPIs don't match the company's long-term goals, they will be able to determine that and discard them if it's necessary.
When it comes to how you will need to show your KPIs management skills at the top level. Using these three questions and communicating with your team through them will help you out:
- What's our method for tracking each KPI?
- Who owns the development toward each KPI?
- How do we want to perform and share these KPIs?
Knowing KPI Dashboards
KPI dashboards are handy tools that will help you manage KPI better, and they will help you answer these three questions mentioned above. Dashboards will provide you with full insight in real-time about your most essential KPIs. Managers will be able to assess progress and share the information in several ways with their team.
However, KPI dashboards aren't magical. They will help you, but when it comes to the effective data-driven decision making process, the human factor is most important.
KPI Pairing for More Competent Management
Frequently checking your crucial KPIs will allow you to course-correct when needed, and that is critical to ensure the success of your company.
Indicators will serve to direct your attention to the things you're monitoring. But what can possibly go wrong? Some managers will overreact and continually tweak and tweak a particular KPI until you either can't get an accurate read on your development toward it or you over-optimize and leave yourself and your team too little wiggle room.
How to defend your company from overreacting? By merely pairing your KPIs, as that action creates the counter-effect.
Know When to Let Go
The process of KPI management is constantly evolving, and probably some KPIs that helped you grow, will not be necessary anymore. Something you've been monitoring for the past five months, at some point, stops to be an essential KPI, and you need to let it go or simply need to decrease their priority. Don't get attached to your key performance indicators and learn to distinguish whether they are still key performance indicators or just valuable indicators.
How to let go? Follow the next few steps:
- Observe your KPIs;
- Frequently, let's say monthly, and honestly question their worth;
- Regularly discuss mentioned questions with your team;
- Be patient, but also be open to change.
The Purpose of KPI Management
Besides understanding and assessing the current performance, KPI management is also about being predictive. If they are right, KPIs should provide you with an insight into your current performance and help you establish future actions.
For example, you are a sales manager, and you defined the Sales Per Rep as your most essential key performance indicator. You need to observe your KPI and determine your actions if your sales rep is continuously exceeding the target you set. If this is the case, you will most probably need to place another objective, but also consider various other actions, such as hiring a new sales rep.
What happens when you have accomplished that rare place of feeling content with your growth engine? If you are a sales manager, it means that your focus now has to be switched from sales per representative to KPIs with a focus on profitability, such as customer lifetime value to customer acquisition ratio.
When it comes to managing KPIs, there is much more about moving towards the desired goal than about pivoting when the time is right.
Performance management and key performance indicators are tied together very closely, and they are both essential for successful company management. They are both working continuously towards the improvement of the overall organizational performance. Performance management and key performance indicators will help you manage the progress of your team and individuals and how they correspond with the global corporate ambitions and goals. There are many positive aspects these organizational tools provide for your business or company. Still, only if they are used on the right efficient manner, they will offer those benefits to your company.