Power of KPIs 🔋
(KPI = Key Performance Indicators, not whatever else you were thinking)
#68
Align Staff Activities With Company Growth
The piece below I read yesterday reminds me of a conversation I had with some friends who own a food truck, and would be quite relevant to them. Quick story: They set a target for their employees in the food truck to sell all the food in the truck before ending their day. The employees began ending the day much earlier than he thought and the sales amounts were dwindling. Curious to find out what was happening, he picked a pack for a friend and realized realized they were putting more food than the approved portion in each pack! In the employees’ minds, their KPI was to “sell all the food before they ended their day” and they felt completely okay heaping each pack just so they could end early. They were barely focused on the bottom line. This is the difference between measuring KPIs by activity and measuring KPIs by results. We live and we learn. Check out the extract below.
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As your company grows, it will need more structure, and roles become more defined. It’s important that as roles get defined and departments get created that you set the mission of each department. This is the time to translate mission to metrics for your employees.
Remember how you selected the core metrics for your company? Now, you have to distill it further to show how each department contributes to this metric. For instance, if my core metric is to increase revenue by 5% every week, I would measure my finance team on their ability to collect money and prevent payment failures, and my sales and marketing team on the volume of transactions or amount of money they can bring in.
On the issue of KPIs, it’s important that you set up a system that measures and rewards staff performance. And this can happen in 2 ways:
Measure activity
Measure results
For example, if I gave an employee a job to fill a 1,000 liter tank with water every month, the number of times he went to the stream to fetch water will be the wrong criteria on which to measure the employee’s performance. Frankly, you should not care about how much effort because the effort the staff put in does not correlate to your company’s bottom line. You should measure the results. Is the tank filled with water or not? You can then prorate the staff’s performance over how much water is in the tank.
Here’s another scenario where measuring activity is just as important as measuring results. If you run a massage parlor, as an employer what you care about is the satisfaction of your customers and how many massages each of your staff can give. The number of massages being given affects your bottom line significantly and you would want all your masseuse giving a high amount of massages per month. Then, counterbalance the activity KPI with the item that will be negatively affected (unsatisfactory massages) if they strongly optimize for it (quick massages) by making the negative effect count against the activity. A reward and corrections system works here.
KPIs should always be tied to a concrete metric like money in the bank, and not a vanity metric. Number of transactions could be a vanity metric if those transactions do not lead to money in the bank. When you place the incentive on money in the bank, your managers and staff reorient themselves to work on activities that bring cash into the bank.
KPIs should also be set up in ways that incentivize creativity and innovation around the process.
Podcast— What I’m listening to (1 podcast episode a day= 365 podcast episodes a year) — Broadening my experiences through others’ stories.
Tides of History- Listened to the episode on the Medici family (godfathers of modern day banking). Quick 1 hour episode that provides a wealth of information.
📱📱Quote of the day
“Sow many seeds. See what takes root and then blossoms. Nurture those markets.” - Mao Tse-tung
Remember folks: “Until the lion learns to write, every story will glorify the hunter.”