Key performance indicators, or KPIs, give managers and business owners a way to measure the company’s productivity. These metrics may be used to compare the company’s performance against others in the industry or as a benchmark for setting future goals. You can also use the KPI system to motivate your employees by offering bonuses for meeting specific targets or deadlines.
Start by choosing a metric that relates to the type of business your company operates. If you manufacture products, your KPI could be the factory’s production rate or percentage of defects. A service-oriented company may benefit more from a KPI related to customer satisfaction or number of clients serviced each day. Make sure the KPI you choose can be measured so you can track the company’s performance over time. Analyze your competitors’ performance to determine the industry benchmark for the KPI. You will use this as a reference point when setting goals for improvement.
When deciding on a metric to use as a KPI, consider its effect on the company’s overall performance. If the company could function adequately while falling below the industry standard, the metric is not a relevant measure of performance. You should also look for a KPI that indicates future performance instead of a purely historical metric. Do not choose factors outside of the company’s control, as these cannot be reliably connected to the efforts of your work force.
To make the best use of your KPI metric, you must also set goals to meet in the future. You can set up these goals on a companywide basis or target specific departments. Compare your KPI with the industry standard first to see how you measure up to your competitors. If you fall short, use that standard as the first goal. Specify a deadline by which the company or department must meet this benchmark. Once you reach the industry standard, you can increase the goal by a small increment. Choose goals that are reasonable for the employees to reach so they do not lose motivation.
Do not neglect the KPI after your initial push to improve performance. You should periodically analyze your company’s relevant KPI metrics against the industry standards to make sure you are keeping up with your competitors. Set goals that each department should maintain throughout the year. If one area of the company continually struggles to hit its benchmarks, this may be a sign that you need to hire additional employees to help with the workload.