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Driving your Business Success with KPIs

Driving your Business Success with KPIs

Article by
Mark Kingsford
Business Advice, Director, Staples Rodway Auckland
mark.kingsford@staplesrodway.com

Does What you Measure Match your objectives?

Key Performance Indicators (KPIS) are the critical business metrics which demonstrate how well your business is achieving certain identified objectives.

KPIs may be pointers of operational effectiveness, gauges to successful execution of strategy, or allow benchmarking and assessment of business performance.

Lagging vs Leading Indicators

KPIs that measure and benchmark past performance are lagging indicators. For example, a simple lagging indicator, used by most businesses is gross sales month to month. Leading indicators provide signals of how your business is going to fare in the near future. An example of a leading indicator is customer satisfaction, as it indicates ongoing customer retention.

Ideally a business would use both lagging and leading indicators.

"People Respect What you Inspect"

KPIs can ensure that the staff are focussed on the inputs or activities required to drive a good result.

KPIs can also provide a mechanism to motivate, and possibly remunerate staff, without needing to show them full financial information, which may be confidential or deemed too sensitive to release.

Measure and Adapt

The use of KPIs can help you measure the effect of different initiatives, to ensure maximum value and lessons are extracted. For example, for an online retailer the number of website hits is crucial, therefore tracking unique visits can help assess and compare the impact of different marketing campaigns such as Google AdWords or social media.

Good KPIs

KPIs will differ from business to business and can depend on a number of factors, including specific industry, stage of life cycle, strategic initiatives, and customer engagement model.

Your business may have a vision, mission, BHAG (Big Hairy Audacious Goal) or Single Organising Idea. Putting KPIs around these gives you a greater ability to drive aligned activities.

Keep KPIs to a minimum. There can be a desire to measure and report against many things. However when you boil it down you find that there are usually a few things that have the most effect. Define these, measure them and report against them.

KPIs can be a great tool to help achieve your business goals, but every KPI that you add takes time to measure and report on. Your KPIs should be clear and succinct otherwise you are diluting your business focus and diverting your peoples’ energies.

How

A good reporting tool is needed, so that capturing and reporting against KPIs is simple and in real-time. If it takes too long or is too complicated to calculate, then it will not be effective. Good tools can report financial as well as non-financial data.

Our Staples Rodway Real Time Reports, for example, can incorporate financial data such as sales, gross margins and other key metrics, straight from your financial system, and non-financial data from websites or via uploads.

Technology also enables greater comparison of your business KPIs (although largely financial) to those of like businesses. This helps you establish what “normal” or “good” is and how others are tracking.

Summary

This may seem simple (the best KPIs often are) but can have a massive effect on your business. The very process of selecting appropriate KPIs assists the business focus on what is really important, and what needs to be done to be successful.

At Staples Rodway we have experience at identifying appropriate KPIs and implementing mechanisms to capture and track performance against them. Talk to your local advisor or contact Mark Kingsford, one of our Auckland Directors, on (09) 373 1125.

A CLIENT’S EXAMPLE

When working with the board of a chain of real estate agencies, obviously the number of house sales is a critical indicator of financial success. Therefore our first step of establishing a KPI framework was effective reporting on house sales and the method of sale – auction or by negotiation.

However, we quickly realised that the volume of house sales was hugely dependent on the number of listings held. Sales was in fact a lagging indicator.

Based on an expected conversion rate we could, based on opening listings, calculate how many sales would cover the following months. This gave us great insight as to expected profitability and future cash flows. It allowed us to more proactively manage the business. Listings was the leading indicator.

Based on this information the branch manager’s functions altered from trying, largely unsuccessfully, to drive agent behaviour towards sales, to driving behaviour conducive to obtaining listings and measuring and reporting on these initiatives. The agency was more successful in terms of sales and gained market share and profitability as a result.

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