It’s a simple statement to which we’re sure everybody will answer “no, of course not!”. But although the answer to this question is so simple, we often see that companies are using the wrong KPIs and metrics to measure what they want to know.
Measuring your shoe size, the amount of baking soda needed or how big your backyard is: you all need different indicators to measure what you want to know. And although teaspoons are very effective for measuring how much baking soda you need, it doesn’t immediately help you to work out the size of your backyard.
But how should you, as a company, define your KPIs? Below we’ll share a 4-step approach, based on a session we had with Grégoire Talbot, on how to get to the right indicators for your business.
Step 1: Map your business model
It all starts with your business model. What better way to measure the things you and management really want to know, than by identifying what your company’s key building blocks are. In other words, you shouldn’t be monitoring your company’s slates, but rather its foundations as this will have a much bigger impact on your results.
Not sure what a business model is? No need to reinvent the wheel! Below you can download our business model canvas to help you. This canvas contains 9 building blocks for your company, for example the customers for whom you create added value, the channels you use to reach those customers, and so on.
Fill out this template and you have your business model! Be careful, if you have multiple entities or your company is located in different countries, you should fill out this canvas for each of them.
Step 2: Focus in by limiting the scope
When you fill out the business model canvas, you might get the idea that you need to measure everything you’ve identified. Let us stop you right there…
The whole point of this 4-step approach is to get to a clear and impactful dashboard that at a high level indicates the focus points for your company. What better way to define those focus points than to put yourself in the shoes of your CEO. What would he or she need to know in order to steer the company in the right direction?
Try to limit yourself to 5 or 6 strategic objectives. A hint might be to look at the different departments within the company and think what their goals could be to reach their strategic objectives. You’ll probably notice that you can divide the CEO’s 5 or 6 goals into different, smaller, objectives for different departments. This brings us to the next step.
Step 3: From top to bottom
The third step is to transform these objectives into more concrete actions points. For example: Company X has a strategic objective to increase sales. For the marketing department, this objective is translated into increasing the average basket value per customer. Which KPIs do they need to track to follow up on this objective? This could be the number of pack promotions, the average value per product category, and so on.
A good practice is to draw up all the elements in a tree structure. Start with your strategic objectives, translate this objective into objectives per department and then define your KPIs. By visualizing this tree structure, it helps employees to see how they contribute to the overall strategic objectives. It can help them to better understand what their impact and the end-goals are.
Step 4: Structure your thoughts
So far you have already defined all KPIs per objective, now let’s group them into four general categories: objectives, external factors, internal factors and projects.
By merging them into these four groups, you visualize your strategic plan where your objectives are the KPIs that are concerned with revenue, costs, shareholders, etc. External factors are all the elements related to customers, competitors or the environment. Internal factors are the elements you as a company can control, for example productivity, employees, company culture, the tools used, and so on. Your projects are the actions plans and the follow-up of those plans to be monitored if you reach your strategic objectives.
Once you’ve completed the 4 steps above, you’re ready to create a dashboard that is tangible and completely customized to your business, aligned with its strategic objectives. A big part of the KPIs are common for all companies, but it’s that part that is different from the others you need to capture. Getting the visualization clear and understandable for everybody will be a challenge, but at least you’ve thought thoroughly about the content which already means 60% of the job is done.
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