Achieving growth objectives: what company, which thinks big, does not have this ambition? In fact, are there really entrepreneurs who don’t want their organization to prosper? Whether it’s by increasing sales, acquiring new markets, improving the customer experience, lowering production costs and more, there are many ways for a business leader to move towards success.
Exploiting accurate and reliable data to identify the areas for improvement necessary for the company’s prosperity is the reason why managers consider performance indicators (KPIs) more in their decision-making process.
However, to better achieve their objectives, more companies are turning to management strategies aimed at collecting measurable data to evaluate the performance of their operations from several angles.
Now that technology can automate and digitize more than 85% of a company’s operations, the data that is generated can be used to obtain very precise performance indicators. Through dashboards, which process the data used, it is even possible to visualize the behaviour of performance indicators in real time, which simplifies the strategic decision-making process.
Partly for these reasons, it is quite possible that you will hear more and more about the relevance of involving performance indicators in the management of your business objectives.
The following content will help you better understand the various components and concepts related to performance indicators in order to grasp their potential within your growth strategy.
Performance Indicators: Mission and Opportunities
The mission of a performance indicator is to measure the performance of the actions involved in achieving the objectives that an organization has set for itself in the short, medium and long term. It also makes it possible to compare its practices and results with those of the industry (benchmarking).
Thanks to the use of data necessary to interpret performance indicators, a business leader can evaluate the productivity of his organization and track the pace of the efforts attributed to it. By means of these benchmarks, an organization can better target the areas for improvement that will allow it to achieve its growth objectives.
The six most commonly used types of performance indicators
Your business is unique and faces unique situations and challenges. For these reasons, it is recommended that you identify the performance indicators that relate as much to your sector of activity as to your business reality. As a manager, you already know the areas for improvement on which your organization must focus in order to achieve the set objectives; however, you still need to know what you need to measure. Here are the six categories that apply to all sectors of activity combined.
The mandate of these performance indicators is to identify and monitor your company’s business activities. This type of performance indicators can gather data allowing you to explore several strategic axes while validating several hypotheses referring to your commercial strategy such as :
- Measuring the revenues generated according to the production lines;
- Calculate the productivity of your production lines;
- Evaluate the production capacity of new products on your assembly lines;
- Estimate your potential to acquire new market shares;
- Identify the match between your products/services and its price on the market.
These measures are mainly mastered by those responsible for human resources. They are mainly used to facilitate the control of payroll costs and production capacity. However, it is still possible to formulate performance indicators to highlight issues that concern the workforce and to identify areas for improvement involving the management of your staff:
- Absenteeism rate;
- Cost of integrating new employees;
- Level of performance;
- Turnover rate;
With reference to the main financial ratios established according to the sector of activity operated, the financial performance indicators provide the necessary indications to evaluate the financial health of the company. Thanks to this type of performance indicator, it is possible to evaluate several components involved in the solidity and financial potential of your organization:
- Return on investment;
- Return rate;
- Working capital requirements;
- Cash flow plan;
- Management of accounts receivable;
If you are a company that uses the Internet and social media in its marketing strategy, you are probably already familiar with this type of KPIs. The question remains to know to what extent you use them to diagnose your results. When used properly, these performance indicators help bridge the gap between the efforts invested in the digital promotion of your products and your sales performance. These metrics become the voice of your target market by highlighting different audience behaviours and their level of engagement with your brand. Here are a few examples of performance indicators found in this category:
- New visitors Data;
- The average length of a visit to your website;
- Volume of traffic at cost per click;
- Click-through rate of online advertising campaigns;
- Number of abandoned shopping carts;
- Most viewed products;
79% of companies with an optimized supply chain achieve revenue growth above the average for their industry. (source) If you manage a manufacturing or distribution company, the use of performance indicators, which ensure increased control of your inventory and the turnover of your merchandise, will become your best friend. Analyzing the key measures of your supply chain will allow you to target the problems that a company may experience in its inventory management and logistics:
- Inventory turnover;
- Order production;
The purpose of these indicators is to measure the performance of your organization’s technology activities. For a company that wants to make its business processes profitable and optimize them through technology solutions, it will be able, using these indicators, to calculate the total cost of its technology solutions and compare them to the gain they bring in terms of productivity or revenue (KPI strategic alignment). These indicators are also used to measure :
- The security of your IT systems;
- IT impacts and issues;
- IT infrastructure performance;
- System availability;
Remember that the performance indicators that you intend to implement in your management strategy must be in line with the company’s strategy. For this reason, it is quite possible that some of the performance indicators that you will have identified as relevant will come directly from cases specific to your organization. If this is your case, the following point will be useful.
The 5 elements that a performance indicator must contain in order to be fair and reliable
To ensure that your performance indicators are appropriate to your reality, make sure that they meet these five criteria, which is a reminder of the relevance of the S.M.A.R.T. objectives.
- Specific: it must identify a clear objective;
- Measurable: the data used must be quantifiable;
- Achievable: the objectives that refer to them must be attainable;
- Relevant: it must respect the company’s strategy and vision;
- Temporal: its duration must be defined.
To quote the great management theorist Peter Ferdinand Drucker: “You cannot steer what you cannot measure. ». A manager cannot steer his organization to the right destination without having the right landmarks to get there. Involving performance indicators in your management will then help you stay on course to achieve your growth objectives.