If you’re a regular reader of this blog, you’ll know that using KPIs to drive real improvements in business outcomes is a passion of mine. Metrics have always been important to me.
However, in the last few years in particular, I’ve been investigating how various organisations use KPIs (and when they don’t). I’ve also studied the behaviours and cultures around KPI usage, and strategies for their implementation. And I’ve seen some ineffective strategies around.
Looking at the entire sales chain
Quite often, I’ve seen businesses use metrics to measure targets, such as profitability, stock return rates and staff retention, without considering the metrics that might drive those outcomes.
To me, this shows a lack of understanding about how to develop effective business strategies—strategies that have structure and forethought likely to produce the intended income as opposed to just a measure of the result.
For example, the process of measuring sales outcomes is quite well defined. Yes, everybody looks at sales revenue and net profit. However, we analyse the entire sales chain.
Savvy managers also look at metrics such as the number of leads generated, conversion rates, time to close etc. By using this well-defined business process, professionals have learned to measure the metrics that drive the outcome, not just the outcome itself.
Unfortunately, I don’t always see this type of methodology used elsewhere.
How metrics drive your stock returns
Let’s look at another example—stock returns. Anyone who sells merchandise knows there’s a high cost associated with returned stock. In some industries, a single returned item might cost the organisation the equivalent margin of 10 or more sales!
So let’s think about the types of metrics that might drive a particular stock return level.
- the wrong products are being shipped
- the addresses are incorrect
- the products have a higher-than-expected failure rate
- the products aren’t meeting the customer’s expectations.
Depending on the product, dozens of factors could be driving a high or low return rate. Yet many organisations don’t monitor these metrics effectively enough to determine the core causes or, just as importantly, help them drive change.
Another example is staff retention rates. However, I’ve saved this one for next week’s article, so keep an eye out for it.
What’s your strategy?
If you want to improve your organisation’s performance, you need to start developing a strategy to improve it and, of course, measure it. Because any strategy without metrics is usually ineffective.
Just a few things for you to think about…