KPI's - Creating a Roadmap to Success

For those of you that know, KPI stands for Key Performance Indicator. I'm going to challenge you. Maybe KPI actually stands for Key Planning Indicator. Maybe KPI stands for Key underPerforming Indicator. Alright, that last one was a bit of a stretch. Here's my point. For whatever KPI you have, I would argue you actually need three KPI's. Why? KPI's are generally the "end of the road" of performance. For example - Customer Service Scores. When you receive a customer service score at the end of a project or a job, you are at the end of the line and there is no going back. That's how the customer feels and the experience is over with, there is no way to change that score.

I believe that for every KPI you have you need three inter-related KPI's: A leading indicator, the KPI and the lagging indicator. These indicators should be outlined in a very specific process in which you know the leading indicator is necessary to generate the desired result or goal in the KPI and when you are not performing well on the KPI, the lagging indicator should be used to judge how well you are recovering from the drop in performance. Using this system, which needs to be shared and agreed upon with your team (or yourself), will help you predict the future and learn from the past to delivered the desired result. It will also help you create a clear path and understanding of what happens when you are not on track to hit your goal!

Let's use Sales as an example KPI as this is a popular and ubiquitous metric for most organizations. We will pretend we are running an Ice Cream shop. The Ice Cream Shop uses various methods to attract customers to the storefront. One is a sign spinner outside the shop to catch walk-in traffic and the other method is social media posts. So, we know that Sales for the Ice Cream Shop depends on the success of these two marketing efforts. Our leading indicators could be the number of hours the sign person is working outside of the shop and the number of customers that he/she has brought in with the paper flyer/coupon they provide to customers outside the store. The other could be the number of eyeballs on the social media ad and how many people used the coupon code that you posted on the ad. So we know that if we get X number of coupons from each lead source, we will hit our goal in sales for the day. Those are the leading indicators.

The KPI itself we are focusing on is dollars in revenue or sales. This one is simple. We either hit it or we don't. If we DO hit the sales goal, we just keep doing what we are doing and watch the leading indicators. What if we don't? That's where the lagging indicator comes in. The lagging indicator is the number that you already have communicated, prepared and ready to go to repair the poor performance on the main KPI. So in this case, we would have two choices. One might be a lower margin effort to have a sale to bring people in the door on social media. The other might be to repair the leading indicator itself - the sign spinner not being effective or working enough hours.

Let's imagine we decide to do the sale. So I would put an ad on Social Media with a code or QR code for your phone for the sale and in my POS system I would be tracking the number of customers that has brought in over a certain amount of time until the sale ends and the sales KPI is hit.

If the problem is the sign spinner, let's say that they are not putting in the hours they should or bringing in the customers in that they should. We'll do the same thing - track the hours versus what is expected and the results of their efforts (i.e. flyers brought to the register). The big difference here is that we are going to shorten the timeframe we are measuring to get back on track! We will set some short timeframe of daily, two weeks or thirty days and put a focus and accountability behind these lagging indicators until our leading indicators are back on track and eventually our main KPI of sales hits our goal. This should be communicated to the team often to make sure they know almost daily whether they are winning or losing until success is achieved.

While this is a very very simple example, this can be applied to most metrics inside of an organization in almost all of your core processes. The most important things to take away is to really think about the leading and lagging indicators for each of your KPI's and then when leading indicators are not hitting goals, make the adjustments quickly using the lagging indicator and shorten the timeframe and increase the accountability to hit the goal and be back on track! This gives you and your team a very clear SOP on what is expected of them when you are not performing and tracking towards your goals. If this isn't working - go back to the drawing board and review your indicators or your accountability system!