You might have heard the saying, "You can't fix what you can't measure." Yet many companies don't have a standard list of Key Performance Indicators that help them understand the performance of their business. KPIs don't need to be complex calculations—they can be simple, but quantifiable measurements of different aspects of your business.
For instance, let's say your business has four customer service representatives who enter sales orders on a daily basis and let's say they enter a total of 40 sales orders on average per day. If you have four CSRs, the average number of orders per CSR is 10 per day. You publish these statistics and begin to encourage and implement ways that allow them to process more orders per day. As time progresses, you hope to see the average go up, but this becomes your tool to measure the employees’ productivity.
However, sometimes what you measure can cause unintended consequences. For instance, in this example you might see the average order numbers go up, but you might also see an increase in the number of mistakes on the CSRs’ work. To offset this, you create another metric that measures mistakes.
We worked with a company that had a similar situation. Their business was growing and we helped them eliminate a lot of redundant and unproductive steps in their sales order process. When we started working with them, they had five employees entering orders with an average of 35 orders per day. Eventually, they were averaging 50 orders per day with only three people. This was a huge improve in their productivity.
We always recommend creating five or six KPIs for each department or department manager, and tie an incentive to meeting these targets. For the most part, management KPIs should not include things they have no control over. For example, the manufacturing manager should not focus on total orders received each month and instead focus on the output of his manufacturing department, inventory levels or quality metrics. Similarly, the sales manager isn’t measured based on product quality, but based on new orders, revenue and sales call activities of the sales team.