Measure What Matters: Identifying the Right KPIs for Your Business
By Joe Galvin, Vistage Chief Research Officer
While most businesses track key performance indicators (KPIs) to some extent, the question to ask yourself as a leader is whether you are tracking the correct metrics. Are your KPIs giving you a general report of the health of your business, or do they pinpoint progress in a specific area that is critical to growth?
Once you have the right data, the cadence for reviewing and sharing these metrics is key to using them to take action. Formal processes around reviewing and sharing KPIs communicate progress toward goals. More importantly, they can signal things are getting off track.
Top KPIs for Vistage Members
The Q3 2018 Vistage CEO Confidence Index survey asked Vistage members to share the top five KPIs they use to measure the health of their businesses. Respondents provided more than 1,900 unique KPIs.
Unsurprisingly, the following KPIs topped the list:
- EBITDA (earnings before interest, tax, depreciation and amortization)
- Gross margin
Many of the KPIs represented variations on specific themes. For example, there were 110 variations of measures related to profits. However, the majority of KPIs reported were unique. This is expected, since 58% of members said they use company-specific KPIs.
Questions to consider
Are your KPIs and business goals closely linked? If you are trying to grow your business in a specific area, make sure you have KPIs that can measure that progress.
How often do you measure KPIs? Research indicates that most Vistage members measure their KPIs on a monthly basis. However, depending on the nature of your business, you may need to measure them more frequently (e.g., daily or weekly).
Who sees the KPIs? Consider whether you’re sharing your KPIs with the right people in your organization. For example, do your frontline employees need to see them?
Are your KPIs easy to collect? If collecting your KPIs is a long and arduous process, you might want to invest in a dashboard that can easily pull reports on a weekly basis.
Are your employees rewarded for meeting KPIs? Align your employee rewards with your strategic goals. To drive sales for a new product line, you might consider compensating your sales team for new product sales, not just overall revenue.
Ensure you measure what matters. Align your strategy with your KPIs so you can track performance regularly. Challenge yourself and your leadership team to review what is measured and how those metrics align with your goals. Once you determine the KPIs, develop a plan to socialize them, and to drive accountability and improve results.
Sanjay Singh on KPIs
Sanjay Singh is president of Roll-Kraft, a family-owned business that supplies roll form tooling to various industries including tube and pipe manufacturers in the oil and gas sectors, consumer products, automotive, structural, agricultural and racking. A Vistage member since 2014, Singh says that his company structures its KPIs around on-time delivery, quality, customer satisfaction, EBITDA and new customers. He offers five recommendations for Vistage members.
Know what guides you. My company uses cash, vision and organizational systems to guide our decisions. Cash shows us where we’re leading or lagging. Vision is where we want to go long term, which influences our operational framework. This involves organizational systems that guide hiring decisions, performance management and other choices.
Identify your competitive advantage. We discovered that on-time delivery and first-time performance were the factors most important to our customers. Knowing this helped shape our company vision and the kind of people we hire.
Measure what matters. Our KPIs focus primarily on our performance. These metrics are a scorecard that tells us if we’re doing well or not.
Communicate performance. We display our metrics on 80-inch monitors across our locations and also share them with employees during weekly town hall meetings. This gives our employees a sense of ownership and helps them understand their roles in our success.
Use leading indicators to determine action. One key metric for us is the volume of requests for quotes. When that goes down, we can safely predict when the general consumer GDP will inch downward—and when we should put cost-containment plans in place.
My Group’s Approach to KPIs and Accountability
Barry Fennell, principal of Wardell Builders, Inc. shares that he meets with five fellow Vistage members in the construction industry to talk KPIs over breakfast. “We share the tracking methods of our KPIs and hold one another accountable for our deliverables. It is an opportunity for each of us to learn from each other, to incorporate new ideas and be questioned on why we are doing what we are doing.”
This has proven to be very effective and a worthwhile endeavor. “We also are reviewing current market trends and the impact on the construction industry in our area. As a team, we discuss the labor shortage and hiring techniques so we can prepare for the inevitable changes in the economy. As a subgroup, this is some of the value we get from the Vistage practices in our businesses.”