From: www.bizjournals.com

There’s nothing new about using KPIs (Key Performance Indicators) as an important part of management practices. The concept of identifying critical success factors and key performance indicators dates back to the 1960s, although it is generally believed that it gained broader appeal in the late 1980s.

Given the years of evidence about the value of KPIs to operational improvement, why haven’t more small and midsized businesses adopted the process?

It may be a combination of a lack of information, lack of resources, and, perhaps, the idea that the business is too small to benefit from KPIs. Having said that, I do believe that many business owners monitor success factors informally, at a gut level, although that lacks the discipline and adaptability that a more formal process offers.

As an executive overseeing organizations that range in size from 10 employees to 250, I think the following steps can be helpful as companies seek to incorporate KPIs into their operations:

Understand what KPIs are and the value they can bring

KPIs are measurements of the most critical performance areas within the organization and allow you to identify a business process, make and test improvements and evaluate the effectiveness of these improvements. They form the baseline for any well-run business.

You may hear the terms lagging indicators and leading indicators used in conjunction with the development of KPIs. Borrowed from the stock market, these terms reflect either the evaluation of performance and changes you have put into place (lagging indicators), such as profits or turnaround time on orders, or more predictive elements such as sales prospects in the pipeline or visits to the website (leading indicators).

Lagging indicators are often easier to measure, but lack timeliness and aren’t as predictive in nature. Leading indicators, while harder to measure, allow you to get ahead of the process to influence important changes.

Identify available data and which are of the highest strategic importance

After examining your business and the available data, determine what should be measured to more readily achieve success. This might include sales, customer satisfaction, profitability and operational efficiency, although there are others that may be unique to your business.

Tailor the process to your organization

Next, identify the baseline of what constitutes acceptable performance in each of these areas and how you will measure performance against these expectations.

What creates success or lack of it in each area? Are there factors that can be changed to achieve greater success?

It’s fine to start small and add as you go; the key will be using your data in more effective ways than you ever have in the past.

Although dashboards are an effective way to present and evaluate data, one advantage to starting small may be that you can monitor through existing software programs, such as CRM systems, accounting or database programs and even Google Analytics. Part of this consideration is ease of access to and use of reports. If you have limited staff resources, begin with data you can handle consistently and well.

Monitor/evaluate results and make necessary adjustments

Frequent review, at least weekly, is important, particularly if you’re relying on lagging indicators. Monitoring KPIs on a regular basis allows you to adjust them in a timely way. That’s where the potential for growth resides.

This process works for any business, of any size, in any industry, provided managers start with the right mindset. Businesses can’t reach their full potential without incorporating data into their operations and decision making processes.

As you proceed, you should find that the more comfortable and skilled you become in using KPIs, the more informed your decisions will be, leading to better results for your company.