Key Performance Indicators (KPIs) are a standard feature in any business environment, but it’s not always easy to create measures for success that are actually valuable to an organisation.
Creating meaningful and achievable KPIs is particularly challenging for smaller organisations. In these cases, owners are busy working in the business, and don’t have to time to manage unnecessarily complex KPIs.
The solution is an easy one to give, but not necessarily an easy one to implement, as managers need to balance simplicity and complexity, and individual and team performance to create effective KPIs.
The base traits of effective KPIs
Broadly speaking, KPIs need to be simple and measurable. If employees don’t understand them and managers don’t have the time to analyse the results, they’re essentially meaningless. To make it easier to create performance measurements, KPIs can be categorised into two main groups.
The first, and probably most traditional are those that focus on outcomes, such as sales targets and overall productivity. The major benefit of these KPIs is that they are easy to understand and simple to measure. However, the major downside is that if the results are negative, they’re reflecting actions and mindsets that can be anywhere between six and 12 months out of date.
So, while it’s still worth keeping track of outcome-based KPIs, they don’t hold all the answers when it comes to managing employee performance. This leads into the second category of KPIs which are those that measure activity.
What are the actions employees take to achieve their outcome-based KPIs? Carrying on the example of sales targets mentioned above, meeting these goals may depend on relationships between employees and clients that develop over time. The activity of the salesperson in these cases, even before they close a deal, may lead to business enquiries going up. It’s possible to measure this activity and the different stages of these relationships and craft these into KPIs of their own.
This is not just beneficial to a company’s bottom line, but to employee well-being also. In reality, it’s much more satisfying for employees to measure their activity successfully rather than getting themselves down over missing their sales targets.
Individual vs. team KPIs
The next problem a business owner will face when creating KPIs is whether to focus on individual or team performance metrics. The answer is that there’s no right or wrong choice, but rather a delicate balance that ensures not only an individual is performing well, but also their efforts support the overall success of the team too.
Broadly speaking, both activity- and outcome-based KPIs apply to individuals and their wider teams. The challenge lies in ensuring that individual performance isn’t supported at the expense of the team and vice versa.
For the individual, it’s important they have goals they can set themselves which guide their performance and offer moving targets. If the KPIs that focus on activity are well-guided, simple to understand and easy to measure and execute, individuals are likely to achieve positive outcomes as well.
If individual KPIs have the potential to make people act selfishly or create an environment where people won’t share, something needs to change.
Ideally, a proportion of these KPIs will focus on what individuals can do within the business, and another set will encourage team success, a balance that is difficult yet essential to achieve.
The science of focus
While there’s no set KPI that will work for every business, there are a few key principles managers can keep in mind to ensure whatever they do create is valuable for their teams.
I’ve recently begun to investigate focus, what it means for businesses, and how human limitations impact the way KPIs are formed. In the business environment, I’ve found that the concept of the top five offers important direction for individuals. This refers to the top five activities or goals an individual or team should direct their attention to.
Whether these five activities or outcomes occur over a day, a week or a month, the idea is that they don’t overload a person, and represent the maximum amount of tasks they can focus their attention on.
However, I’ve also heard of a similar mantra in the sporting environment which focuses on the top three. Same concept, smaller number of key tasks and outcomes. This reinforces the value of keeping things simple by limiting the important points employees need to worry about or act upon.
This mindset underpins what it takes to develop great good KPIs. They need to be easy to understand, simple to measure and execute, focus on both activity and outcome and encourage both individual and team success.
It’s a delicate and difficult balance, but businesses that get it right stand a much better chance creating successful employees.