20 Mar 2017
What Performance Measures do you use to run your business?
I have a firm belief that many of the people problems that SME owners experience comes down to lack of clarity.
What do I mean by that?
Simply put, the employee doesn’t know what is expected of them because their manager (often the owner in an SME business) doesn’t manage them effectively and the fundamentals of Performance Measurement (also commonly referred to as KPIs) are just not there.
What's also quite revealing is that a lack of management at individual level can be indicative of how the business is being managed (or not!) by the owner.
Let’s take a look at how we’d expect to see a well-run business being managed:
- The owner has a clear idea of the revenue and profit goal for the year
- This goal isn’t a pipedream because there’s substance behind it in the form of an action plan
- The team have a good understanding of the goal and the plan and – critically - they’ve been told how their function fits into this plan and the key performance measures they need to be producing within any given time frame
- The team member knows his or her key actions or activities that will lead to the outcomes they are expected to deliver
- The owner (or manager) will review progress towards these outcomes on a regular basis (at least monthly)
- Appropriate feedback will be given depending upon progress. Eg. Praise for exceeding performance, positive stretch for meeting performance and support/training/honest discussion for below performance.
Does any of this sound impossible to implement?
No. It’s not.
Any business can do this…IF you genuinely see it as a critical part of managing team (and company) performance and then choose to prioritise this discipline into your daily life.
So, how do you give team members the level of clarity they need to perform at their best?
Well, for the purposes of this article I’m going to make the assumption that points 1) and 2) above have been defined so it’s now simply a case of breaking the overall business and functional goals down into individual outcomes. For more information on having effective 121s with your team click here but for the rest of this article I want to focus specifically on Performance Measures.
How are you measuring your business performance?
With a simple process that reveals how your business is performing in any given time frame, you can improve the prospects of your strategic decisions. Identifying and consistently measuring your business's Key Performance Indicators (KPIs) will give you this valuable insight at a glance.
To get your head around KPIs, all you’ll need to get familiar with are 3 levels of measurement...and the best way is to think of the very simple example of losing weight!
Performance Objective (PO)
A PO should represent the overall goal you are aiming for, which should of course be aligned with your company’s wider annual objectives. (eg. you may want to lose 2 stone in weight, thus getting down to 12st by the end of the year)
A Performance Objective is only as valuable as the action it inspires. Too often, SMEs blindly adopt industry-recognised objectives and then wonder why that objective doesn't reflect their own business and fails to affect any positive change. Create an objective that you really want to achieve (not what others might think you should achieve). At a headline level you will most certainly want to have POs for the core functions of the business, namely Sales & Marketing, Operations and Finance/Admin.
Key Performance Indicator (KPI)
A KPI should represent progress on the main activities that are necessary to be performed in pursuit of the performance objective. (eg. In order to lose 2 stone in weight you could measure the KPIs of gym visits and calorie intake)
KPIs are most useful when developed to help you achieve your Performance Objectives. Depending on your industry and the specific department you are tracking, there are a number of KPIs your business will want to monitor.
When developing KPIs you must understand what your business objectives are, how you plan on achieving them, and who can act on this information. This is better as an interactive process that involves feedback from department heads and managers. In this way, you will gain a better understanding of which business processes need to be measured with KPIs and with whom that information should be shared.
A good process to follow when assessing which KPI to use:
- Aligned - Make sure the KPIs you choose align with your strategic goals
- Attainable - The KPIs you choose to measure should have data that can be easily obtained.
- Accurate - The data flowing into the KPI should be reliable and accurate.
- Actionable - Does the KPI give you insight into the business that is actionable?
Take a look at the ActionCOACH KPI Selector to learn more about the KPIs you could be measuring.
Key Performance Result (KPR)
A KPR is the outcome you should expect to see as a result of the activities (KPIs) that are being conducted on a regular basis. These act as milestones on the way towards hitting the performance objective.
(eg. Standing on the scales to check your weight each week will give your Key Performance Result).
As with all ActionCOACH strategies, to be most effective, POs. KPIs and KPRs need to be consistently monitored and reported. Dashboards are the perfect tool as they can be used to visually depict the performance of a business, a specific department, or an individual team member.
A good process to follow when reviewing performance measures (POs, KPIs and KPRs) is:
- Share them with stakeholders
- Review them on a weekly or monthly basis
- Evolve them to fit the changing needs of the business
- Update them as needed
To learn more about identifying and consistently measuring your business using appropriate Performance Measures, get in touch or join our upcoming 'Know Your Numbers' Workshop which is running on Wed 12th April at McDonald Houston House Hotel from 6.00pm - 8.30pm.
Good luck setting your Performance Measures!