How to effectively use KPIs with your team

This article will provide a simple guide on how to effectively use Key Performance Indicators (KPIs) within your business or team and provide some free templates for you to use.

KPIs are an amazing tool to help keep track of how your team and business are progressing towards a set of goals. A clear set of KPIs will help you align your team, create greater focus and motivate team members.

But be warned… KPIs can be very dangerous if not properly executed.

Most businesses have bad KPIs

Many businesses and managers fail to give sufficient attention to the definition and creation of proper KPIs.

This can lead to a number of common mistakes:

Misunderstanding of the business objectives.
KPIs being used solely for reporting upward and not to help the team understand and optimise its performance.
Failure to implement a regular rhythm where the KPIs are reviewed and more importantly discussed.
KPI’s that are not easily measurable.

Here are examples of bad KPIs:

“Improvement in customer satisfaction”
- how is this measured?
- improved from which level?
“Increase in price”
- Price is a complex topic to measure
- What is the scope of the sale?
- An increase compared to what?
“Customer Satisfaction Surveys”
- Is this the number of surveys performed? or the customer satisfaction score?

The impact of loosely defined KPIs is that teams will start “inventing data” and naturally try to make the result look good.

These pitfalls are easy to avoid!

Here’s how step-by-step:

Step 1: Define the business objectives

If you don’t know what outcome you want, you cannot set performance measurements to get you there. Having a clear set of goals that the business wants to achieve is the platform from which to measure performance.

More information on this stage can be found in my article on Strategy Deployment. This technique is the starting point for any KPI setting exercise and one that I have used successfully many times with my own teams. The Hoshin Kanri framework described in the article will give you a good starting point.

Step 2: Find measurable indicators of the outcomes you want to achieve or standards you want to maintain

Find indicators that are helpful to the working team. They are intended for them.

Financial metrics are the easiest to start with and businesses usually have monthly or quarterly financial outcomes. Choose financial metrics which can be influenced by your team. There is no point in reporting a metric which your team cannot influence directly.

Performance metrics are more interesting. Ask your team to describe the performance standards they expect to achieve for the business. Some examples:

Units of product delivered or manufactured
Amount of time taken to complete a process step
Number of training courses held
On-time rate
Customer response time
Defects per piece

Step 3: Define each KPI in detail

With your list of measurable indicators, you next need to define each KPI in detail.

Create a table and for each KPI list the following information:

Monthly KPI Purpose (Why Measure?)
Customer (Who will use it?)
Data Sources (Where will it come from?)
Definition or Formula

I have shared an example table for the KPI definitions in the Monthly Management template provided below, which you can use.

Step 4: Build your Monthly Management table (Bowler)

Now that you have a list of performance indicators and the definitions it is time to set up your targets.

Here is a free template: Monthly Management – Performance Tracker Template

The use of a ‘traffic light’ colour coding gives a quick general overview of the status of each KPI. Green for achieving the target, orange for close to the target and red to indicate away from the target.

Defining monthly targets for when each of the KPIs should be reached is very important because it gives the team an indication of the order of priority. For example, in the template above the financial KPI is split equally throughout the year.

The table should also include KPI owners who are accountable for reporting the data each month.

Step 5: Setup the monthly review

Now that you have the right framework in place all you need to do is set a rhythm to review and discuss with your team.

I recommend a monthly recurring meeting where you run through the entire Monthly Management chart, use this time for the KPI owners to provide an update and encourage debate during these meetings as to how and why the performance is where it is. You will often find that KPIs need to be reviewed in pairs to determine the underlying drivers:

quality vs speed
price vs performance

Once you have this system in place you will be in a much better position to diagnose issues, anticipate problems or celebrate your success. Try to encourage honesty. There is a saying in these reviews “red is the new green”. Discuss the red indicators in a constructive way often these will lead you to solve significant underlying issues.

I hope this article was useful for you and you have great success implementing these tools.

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Charles Haworth