What KPI's (key performance indicators) Should You Focus On?

Key Performance Indicators (KPI's) are not new despite having their 15 minutes of fame in the past decade; John Doerr, etc.

In fact, according to my trusty AI partner, "...the concept of Key Performance Indicators (KPIs)?can be traced back to the 1870s, during the industrial efficiency movement".

That said, I was asked the other day what KPI’s (key performance indicators) I pay particular attention to as a gauge of company health.

My answer surprised her.

I stated that it’s NOT revenue and profit.

I could sense she was a bit dumbfounded.

So, I gently explained to her that revenue and profit are merely “lagging indicators”…meaning that they’re a consequence of some activity or decision that came before...sometimes years before!

No matter; in high technology the decision makers who set the wheels in motion are probably long gone anyway.

Unfortunately, many companies that I’ve worked with, and consulted for, had a bias towards using those two lagging indicators - revenue & profit - as the sole measurement of individual and company performance.

Why?

They're static.

They're “hard” numbers.

It’s easy to point fingers at, and chastise someone for.

"Off with their heads!”

But, it’s only truly meaningful when reporting quarterly performance "to the Street", and NOT always helpful if you take the long view for your company.

Probably a major reason why only ~50 of the original 1955 Fortune 500 companies are still in the F500 today.

Sort of like driving forward by only looking in your cars rearview mirror.

Anyway, I told my mentee that revenue and profit have a way of taking care of themselves; but, ONLY if you fixate on “leading indicators”.

Unfortunately, leading indicators can be a leap of faith for executives; especially if their performance is tracked quarterly.

By definition, leading indicators “represent things that are not facts yet in your business”.

That is, they may lead to facts in the future, but currently they’re just a SWAG (i.e. scientific wild-ass guess).

In high technology B2B I believe that the most important leading indicator is “innovation”.

The other critical KPI that I fixate on as a leader is creating an environment that has a high degree of “psychological safety”.

It has been demonstrated time and time again that organizations which have a high degree of psychological safety foster innovation more often than organizations which are led by autocratic or micromanaging leaders…generally speaking, this type of leadership stifles innovation…and was no doubt a great contributor to the “great resignation” during the pandemic.

So, to end this soliloquy, let’s again pay homage to Peter Drucker:

"Because the purpose of business is to create a customer, the business enterprise has two--and only two--basic functions: marketing and innovation.“Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business."

#kpi #leadership #innovation #psychologicalsafety