KPIs – What they really are and how to use them

"Everyone in business knows all about KPI’s don’t they?"?

I can understand why you’d think that. I thought so too but my experience has taught me that, to quite a large extent, no they don’t.

Reassuringly, most businesspeople have at least heard of KPIs (they quote the term in conversations frequently). Most know what the letters stand for but that is not the same as understanding their significance and knowing how to use them to help you.

In any business, there are a plethora of things you can and possibly do measure. All of them tell you something about how one aspect of the business is doing. These are often incorrectly referred to as KPIs but they are usually just a measure.

To risk pointing out the obvious, KPI stands for Key Performance Indicator with the emphasis very firmly on the word Key. Very few measures of a business’s performance are key measures.

The key measures are the very few that tell you, at a glance, whether you have a problem or not in the most vital areas of your business. They usually encompass all sorts of supplementary measures and are the only ones you need to look at frequently and routinely.

KPIs vary from business to business, depending on what is considered to be vital to the success of that particular organisation, but always and necessarily include a financial measure such as Turnover (Income), Operating Profit or Net Profit. There are lots of things to measure behind each of those but you only need to urgently look at the detail if the headline isn’t what you were expecting.

KPIs are the indicators that your business is heading in the right direction towards your vision and within the right timescales. Once you’ve selected the right KPIs for your business, make sure that the underlying information is current and accurate and monitor them frequently.? You will then always have a good idea of where you currently stand against your plan and be able to correct any drifting off course in a timely manner.

It isn’t possible to have 23 KPIs (as one business owner claimed to have). They can’t all be key and it is impossible to monitor them as if they were. Ideally, you wouldn’t have more than 3 or 4. Think of them as the 3 or 4 things you really need to know about.

Your KPIs should also form the basis for any performance targets for your staff so that you can measure the effect of their efforts in taking your business towards your goals.

Sounds too simple? Well, business doesn’t have to be complicated.

Martyn Jones MIoD, Dip.IoD is an expert on simplifying Leadership and Governance, enabling entrepreneurs and small businesses to establish best practice and sustained growth without unnecessary complications.

He is the founder of Martyn Jones https://www.martynj.co.uk/, a portfolio Non-Executive Director and a Mentor to entrepreneurial business owners and CEOs.

Connect with Martyn and follow his posts at https://www.dhirubhai.net/in/martyn-jones-non-exec/