The right KPIs can give you a less complicated business overview and at the same time optimise your operations. But getting it right can be tricky.
Identifying the perfect KPIs (short for Key Performance Indicators) that provide you with the insight you need to evolve and elevate your company can be a tricky business.
You can have regular measurements and follow up on KPIs like:
- Contribution ratio
- Invoicing percentage
- Company pipeline
- Active support cases
- Or something entirely different…
Over time, measuring KPIs can improve your performance.
But if you keep track of key figures that aren’t relevant to your business, your insights become murky.
This makes it crucial to consider precisely what KPIs you should measure to run your company effectively.
Use KPIs to create coherence on all levels within the company
To achieve extraordinary results, it’s not enough to choose the most relevant KPIs in terms of the challenges facing your business or your company’s goals, size and maturity alone.
You must also be able to utilise the same key figures on all levels within your company, visualise progress and be aware of unintentional sub optimisation.
If your decision of KPIs has solely been decided upon by your company’s leadership team without proper groundwork into the daily routines of your workforce, you risk ending up with a series of numbers that don’t reflect the reality of how well your company-machine is running.
However, if you manage to get a well-substantiated and relevant KPI framework in place, you will gain an intimate feeling with your machine. And you will be able to make corrections when need be.
Work with KPIs like a pro athlete
My own inspiration for working with KPIs comes from professional athletes.
They establish goals and milestones, they are patient, systemic, and they use statistics and benchmarks when analysing their own as well as their competitors’ performance.
And they keep doing this until they reach their goals.
But even sizable companies face serious challenges when they try to implement the professional approach of the athletes.
See the 8 guidelines for best implementing KPIs in your company based on data from business solutions.
1. Make the complex simple
A key figure, KPI, or whatever you want to call it, is a simplification of a complex phenomenon.
For instance, if the company is lacking revenue, it’s natural to focus on the invoicing percentage of the individual consultant or department.
This KPI shows the percentage of the employee or department’s standard working time that has been invoiced. But the simple key figure is influenced by several complex processes, like:
- Why were we not able to invoice specific projects?
- Why do we have so many internal tasks?
- Why do we see so much illness in the consultancy department?
KPI before process
To improve the invoicing percentage, you need to optimise all these processes.
But for the leadership, it’s difficult to communicate and work with these processes in detail.
It’s better to focus on the KPIs and ask for the outcome. And then let the organisation work towards the result on different levels.
The excellent leader determines the direction and asks for results. The poor leader interferes in all the daily processes, which are better handed over to mid-level managers or the individual employee.
It differs from company to company which key figures are relevant. It depends on the company’s strategy and level of maturity.
In TimeLog we typically see key figures relating to
- Project management
- Employee time (illnes, flex, etc.)
2. Pick your battles
Often, when a company starts working more actively with KPIs, they choose something like 6-10 key figures to work from.
For employees not used to working with KPIs, this is too many. Starting out with this many and no benchmark overly complicates insights, you get overlapping data, and it is challenging to communicate.
It is better if you choose a few key figures. This lets you spend the time and energy needed to get the entire organisation to implement them. And it helps you to secure alignment across the organisation.
The danger of micro-segmenting KPIs into many specialised key figures initially is that it can encourage the individual employee to spend a lot of time and resources on navel-gazing only the KPIs that are specifically relevant to their job function.
You could say that this can lead to higher specialisation for the individual. But your organisation needs to maintain a collective focus on what matters for the company.
This can be lost if you start out implementing too many KPIs on the individual level.
Start by identifying your company’s key challenges and goals. Then establish the key figures that let you measure if you’re on overcoming these challenges and reaching the goals.
Crucially, your KPIs must reflect the goals and challenges you need to respond to the most.
If you immediately establish key figures for all challenges, you will quickly lose the overview of your primary challenges. This can leave you paralysed as you can’t respond to every single problem.
3. Use the same key figures all levels
If you choose to focus on 3 critical figures like invoicing percentage, illness % and active support cases, then use them on all levels in your company:
- on the individual employee
- on the department
- on the entire company
- and as a part of the board reporting.
If your key figures are not relevant for the board, then you probably haven’t chosen the right key figures. In this case, you are lacking coherence between the tactical and strategic level.
And if you detach your company’s strategic level from your employees daily, tactical focus, your KPIs becomes irrelevant. You won’t be able to follow up on performance from irrelevant KPIs.
Make it a priority to include your employees in establishing relevant key figures while still using the need of the board as the starting point.
4. Be patient and persistent
The easiest part is to choose key figures. The hard part is to stick to these and continuously work with the same 3 key figures nine-month after you agreed on them on your management seminar.
But this is what it takes!
You need to keep focus on the key figures. Preferably every week. It does not matter if it’s during weekly meetings, in status emails, on a shared dashboard or in the CEO’s 5-minute breakfast brief Friday morning.
The important thing is to keep key figures present and relevant to all employees.
Both internally in TimeLog as with our customers, we have seen how patient insistence on one to three key figures can spur changes within the company.
5. Try to visualise your KPIs
If you’re not using a solution with KPI reporting or visualisation features, it can often be a good idea to extract key figures from your business solution and transfer them to Excel sheets.
By gathering all KPIs in Excel, you get the overview that lets you cut away excessive numbers and only communicate what you need the organisation to react to.
It’s even better to visualise the key figures using graphs or illustrations. Especially in a balanced scorecard that you keep visible for the entire organisation to see.
Don’t underestimate the power of visualisation. Sometimes, small changes, like showing the weekly progress instead of the actual numbers, can give you a better visualisation of the progress.
Here in TimeLog, we always keep our balanced scorecard clearly visible in the office, so both visiting customers and employees are up to speed with our current performance.
6. Work with the processes – but keep the key figures
When you have determined your key figures, you then need to improve the underlying processes. You can do this in many ways, depending on what key figures you work with. Also, the character of your company and the level of maturity must be taken into consideration.
It is crucial that you stick to your KPIs and experiment to see what works.
This will give you a context between the processes in your organisation and your KPIs, and provides the insight you need to act if your KPIs turn red.
Not knowing which processes are connected to the different key figures, will leave you paralysed (or blind at best) in times when you need to act.
In my experience, simply having visible key figures, the figures themselves will yield results. Having visible and clear KPIs often sparks a reprioritisation of focus within the organisation that takes place before you start optimising processes.
This alone is often a valuable change.
7. Your employees will adjust behaviour
It is important to remember that if you measure your employees using specific key figures, they will adapt their behaviour accordingly. After all, this is your goal with having key figures.
But here you must be mindful of undesired sub-optimisation. This is where employees adapt their behaviour in such a way that it becomes a disadvantage to your company.
A good example comes from the (often tense) relationship between KPIs for sales and marketing, respectively.
Sometimes you will see marketing boost their lead count, but sales is experiencing a decline in lead-quality. Because marketing’s primary KPI has been number of leads, the effort has only been centred around generating a specific number and not a certain quality. Alternatively, if sales are adapting to elevate closing-rate, they might reject good leads from marketing to limit the number of open processes.
When each team only focus on their own KPIs, they often work against each other and thus miss the overall goal – to increase revenue through lead generation and sale.
It can be a good idea with a degree of scepticism when implementing new key figures in your organisation:
- Could the KPI impact work processes in negative ways?
- Do all KPIs point towards the (few!) shared key figures that overarch your organisation?
An example of sub optimisation from one of our customers:
The customer implemented the KPI External %, which was calculated from the employees' share of external hours.
Focus on this key figure was intense. Each week the customer put an overview of each employees' performance according to this key figure visibly on the wall. It was also used in staff development interviews as well.
This intense focus resulted in employees that no longer tracked the time they spent on internal projects above 37 hours/week. If they didn’t report this internal time, they would gain a higher External % figure.
Obviously, this was not in the interest of the company, as they didn’t get the real picture of internal project costs.
This example demonstrates that you need to carefully choose your KPIs and keep possible employee behavioural change in mind.
Also, it shows that even good key figures cannot replace attentive management.
8. Choose speed rather than precision
Some key figures have an integrated delay.
For instance, you only learn the invoicing percentage after you know the External-%. This makes it easier to guide behaviour according to External-% and make it more relevant for the employees here and now.
If the company almost always invoice all external hours or seldom experience problems with customers not accepting the project hand over, it is better to use Extern-%.
Make sure you can pull your operational KPIs quickly so you and your employee can act upon them.
Are too many of your operational KPIs delayed, you might want to take a closer look at your business solutions. A widespread issue is that internal reporting is often done through numerous, complex spreadsheets.
TimeLog provides you with 10 essential KPIs:
If the abovementioned has given you some ideas on how you can work with key figures or KPIs, then here are some key figures that TimeLog’s solution can provide you.
But remember - don’t pick too many.
- Invoicing percentage: The invoicing percentage indicates what share of the employees' time is invoiced. In TimeLog the invoicing percentage is calculated based on the employee’s normal working time.
- External % / Utilisation: Utilisation - or external % - indicates what share of the employees' normal working time is spent on customer-related tasks. External % is almost the same as invoicing percentage with the exception that not all external hours are invoiced. Sometimes the employee can decide how many hours are invoiced - other times they can’t. The advantage of External % compared to the invoicing percentage is the absence of delay from the hours are tracked to the time they’re invoiced.
- Deprecation: Shows how much of the value created by the employee is deprecated.
- Registered/invoiced value: Revenue on project, employee or department level.
- Contribution margin: Contribution margin on project, employee or department level.
- Employee Retention. How good managers or the company are at retaining employees. Retention is mainly used on a department level. A department with bad Employee Retention typically indicates bad management.
- Illness %: What share of the individual employee or departments normal working time illness accounts for. Illness % is a good indication of the atmosphere in a department.
- Invoicing time: How many days pass from a month’s or project’s completion to the invoice is send? To keephealthy liquidity, it is crucial to invoice as soon as possible.
- Pipeline (CRM): The individual salesperson’s or department’s pipeline. The prerequisite to use the pipeline as a key figure is to have objective criteria for when a lead goes from a forecast of 20% to 30%. For instance, you can have a set of rules that a lead can never go above 20% if they have not received a written offer.
- Events (CRM): How many phone calls or offers the individual salesperson have made during the period.
Back to the athletes
If you compete in archery and want to be among the best in the world, you don’t focus on one goal one week and another the next week.
You know that you probably need to shoot 500.000 arrows before you’re ready for the competition. You devise a plan for the next couple of years. You plan how many arrows you need to shoot every day. You measure, and maybe you expect to see results within three months. You keep it up, and you don’t give in.
It’s the same with companies. The difficult part is to
- Limit the number of key figures
- Measure systematically
- Evaluate and communicate the same key figures week for week.
But if you want to become an Olympic champion – then that’s what it takes.