Which performance indicators are genuinely relevant?
As manager, consultant, or director, you want to know how to improve your company’s performance using (key) performance indicators. Using them is the key to more effective management and optimizing processes. The challenge lies in finding out which performance indicators are genuinely relevant. How and where can you find these crucial performance indicators? And how can you prevent having an overwhelming amount of indicators? And under which conditions can your employees work with them so they can start continuously improving?
The 3 most important methods of determining performance indicators
Finding the right set of indicators (relevant, able to be directly influenced, not too many or too few) isn’t easy. We’ve developed three effective methods that can help you speed up the identification process:
- The strategy-driven method: close in on measurable indicators in small steps using the mission, vision, and goals. This method ensures that your performance indicators will show strategic performance, so your company stays on track.
- The process-driven method: use the company process and its various steps as the stepping-off point. This ties in your indicators directly to the tasks and responsibilities of employees. That’s how you optimize your processes.
- The data-driven method: use data science to collect data from your systems, sensors, or external data sources and combine and visualize them into useful insights. This leads to all kinds of performance indicators and continuous data-driven improvement.
Aligning strategy, processes, and data
A combination of these methods works best, so that you can perfectly align your strategy, processes, and data. This is where many companies fail. It’s a complex process but it makes management not just simpler, but also more effective.
Examples of performance indicators per function
- Market share
- Market share per product group
- Growth of market share
- Amount of respondents to mailing
- Newsletter sign-ups
- Amount of website visitors
- Amount of outstanding bids and quotations
- Amount of lost bids and quotations
- Success ratio of bids/quotations
- Amount of new customers
- Amount of lost customers
- Revenue and revenue growth
- Production orders per hour
- Orders in backlog
- Amount of product returns per reason
- Hours of inactivity per machine
- Supply per product
- Purchase price
- Purchase margin
- Amount purchased
- Amount of suppliers
- Amount of sales invoices
- Invoices over payment term
- Average invoice amount
- Average discount
- Gross margin
- Net margin
Which indicators are genuinely important?
The above list of indicators is, of course, incomplete or only partially applicable to your company. They’re just examples that can help you find the right indicators for your company. The biggest challenge is always that less is more. Whichever method you use, you can end up with a list of hundreds of (performance) indicators before you know it. And it’s extremely hard to monitor and manage performance using a cluttered dashboard. Which indicators are genuinely important to achieving better performance?
The genuine performance indicators
The answer is: the Key Performance Indicators. They show you what is truly critical to achieving a performance breakthrough. They’re also recognizable to all stakeholders and they instantly expose the processes that need to be adjusted. Our quick-start performance management training course helps you identify and classify the genuinely important performance indicators and high-impact insights. And you’ll learn how to drive them.
Examples of indicators from everyday life
Everyday life is filled with indicators, for example the fuel gauge in your car, or your body temperature.
1. Amount of fuel
As a driver you’re always monitoring one important fact: the amount of fuel in your tank. The fuel gauge shows you how much you have left at a glance. You weigh the results of that monitoring against an undesirable situation: when the amount of fuel remaining won’t be enough. You can see at a glance if you have enough or not, in other words, whether the performance measured is acceptable or not.
2. Body temperature
Another example from daily life: body temperature as an indicator of sickness and health. The thermometer functions as a measuring tool. Using our knowledge about what is a “normal” temperature, we can determine a good/bad border: above 38°C , the patient is sick; 40°C and more is life-threatening, except for young children.
How our daily management works
These practical examples demonstrate how our daily management works. You have to pay attention to what’s important in the given situation (focus). And you have to develop a limited number of performance indicators that can provide information about the situation. That’s how you can determine the good/bad borders.
We focus on feedback using indicators that are important to your company. Just like in daily life, the appeal is that there’s a lot of information stored in just a single indicator. This isn’t just something that managers need, but everyone involved in the company benefits from it.
Advantages of working with performance indicators
- Clarifies the performance of the entire department or organization at a glance.
- Quick insight into positive or negative developments.
- Focus attention on the main subjects.
- Indicate where the process can be improved or corrected.
- Display the results of quality improvement projects quickly.
Working with and driving on indicators
Have you determined the right performance indicators, clarified your definitions, and is the underlying data correct? Then you can work with indicators and drive them. But how do you organize that effectively? The top 3 critical success factors are:
- Determining norms and targets and evaluating and adjusting them periodically.
- Using the indicators deliberately for analysis, action, and process improvement.
- Consistently discussing the numbers, both negative and positive scores.
When is an indicator usable?
The examples are deceptive in their simplicity. They seem very obvious. So are they up for grabs? In reality, finding the right KPIs usually involves a lot of searching, choosing, trying, and adjusting. Why does it take so long to make a set of indicators?
The reason for this is that finding the right indicators is about building an effective performance management system. That’s why the indicators have to fit the company strategy and measure its success.
Furthermore, the indicators have to be provided with a target value. The selected indicators have to be reported on efficiently. The reports should stimulate the planning of performance improvement.
To achieve this, managers and employees have to be involved in setting up indicators: the ownership principle. All these factors complicate the formulation of KPIs. However, they also make designing a performance management system more interesting, and the result is a tool that heavily influences performance improvement.
Hallmarks of good indicators
- Simple: easy to acquire, when possible building on what’s already there.
- Visible and informative: insightful, show the achieved results and trends at a glance.
- Motivational and can be influenced: comparable, mobilizing, and within own area of responsibility.
- Part of policy: connects to company objective or urgent quality problems.
- Stimulates customer focus: measures the satisfaction of the internal or external client.
- Drafted with stakeholders: top-down and bottom-up. Acceptable thanks to input in what and how will be measured.
Get started using the right performance indicators
Contact us freely for a discussion with one of our consultants. Find out what we can offer your organization.