Think about it - what sets your company apart? Are you poised to quickly enter emerging markets and innovate new products and services that your customers will value? What are the skills, processes, systems, and activities that will propel your company into the future?
Rhythm Blog | KPIs & Dashboards
by Patrick Thean and the Rhythm Team
In a former job, I had a manager who called all of his direct reports together to tell us some exciting news! We were embarking on a big new project that would require everyone in the company to pitch in to make it happen. There was a lot of excitement (mostly from him), and a lot of confusion (mostly from us). Unfortunately, there wasn't a lot of follow up about what the goal was, who was going to do what, and by when. When I asked for more specifics, it was clear that nobody really owned the success of this project - nobody knew who was in charge. Not surprisingly, the project was a failure. I think we've all experienced similar things - some well-intentioned leader fails to clarify the expectations, and there's a lot of confusion, re-work, frustration, and lost productivity.
As the middle market growth experts, the Rhythm Systems consulting team gets a lot of questions about KPIs, or Key Performance Indicators. All dashboards are not created equal! I want to tell you 4 of the most common pitfalls of KPI dashboards and how to avoid them. Read through them below and see which ones you have the ability to improve. If you spot one (or two), make sure that you make a to-do list item to correct them and improve your weekly team meetings with the right KPIs.
For many CEOs and executive leaders, the idea of having a system in place to allow you to see where you are off-track with the company’s goals or heading for a train-wreck so you can make adjustments before it is too late sounds appealing. Having a dashboard where you track KPIs is a great way to accomplish this, but in order to make the right adjustments to hit your goals, you need to follow a process to set yourself up for success—having the dashboard isn’t enough.
Simply seeing that the numbers aren’t coming in the way you had hoped won’t automatically fix the problem. Once your dashboards alert you to a problem or opportunity, you have to do the work necessary to course-correct and hit your goal. You need to be clear about your goal; you need to identify the levers that could potentially help you get there; and you need to gather the necessary data, have the right discussions, and make adjustments along the way.
We have all heard the saying "A fish rots from the head down," right? Not that I am comparing my CEO friends to fish, but it does drive the point home that creating a culture of innovation starts with you as the leader of the organization.
Peter Drucker, one of the fathers of modern business theory, said if an established organization is not able to innovate, it faces decline and extinction. I could not agree with him more, for in all of my years helping companies, I have witnessed far too many that wait until they are in decline or experiencing shrinking markets, stale product offerings or products that are being commoditized to begin innovating. They usually do not have the resources once in decline to be successful, which is why it is important to build a culture of innovation while your business is strong and healthy.
It can be intimidating to sit down to a blank slate and begin working on your company’s first official KPI dashboard! Over the years, I’ve worked with hundreds of technology companies doing just that - beginning their KPI journey in Rhythm. So how do you get started?
First, it’s helpful to think of your business in terms of 4 key areas: Employees, Customers, Processes and Revenue. In order to have a clear high-level view of the health of your company, you should have visibility on all four areas. What can you measure to give you the proper insights on the health of your employees, customers, processes and revenue?
If you are still stuck, we’ve compiled the ultimate cheat! Below are some of the most common KPIs we’ve seen from technology companies using Rhythm for each of the 4 key areas:
The struggle is real. We’ve all been in meetings about our metrics that produce seemingly endless discussion about the numbers, with no real actions, outcomes or impact on results. CEOs list this as one of their top frustrations – all-talk-and-no-action meetings regarding their Key Performance Indicators.
So, how do you avoid the marathon hamster wheel and have an effective KPI discussion in your weekly team meeting? Teams who are really good at this have two things in common: a properly set up KPI dashboard and a great facilitator. Here are some patterns regarding both:
When thinking about the most important numbers to measure in your business, most of our clients have no trouble coming up with a list of results they want to achieve. The usual suspects are Revenue, Profit, EBDITA, # of customers, employees, or locations, etc. These Result Indicator KPIs are important - you need to think about the results you want to achieve in your business and set those targets. But, don’t stop there. For your key performance indicators to truly help you solve business problems and reach your goals, you also need to spend time developing Leading Indicator KPIs.
It is important to grow the top line of your business on an annual basis, but you also need to make sure the bottom line is healthy which can help fund that growth. This is particularly important if you are a manufacturing company. In most cases, the two biggest expenses in your business are labor and raw materials. There are exceptions, of course, in machine intensive automated manufacturing environments, but let’s focus on the former. So how can we make sure the production floor is running at peak performance? One very effective way is to put the right balance of production KPIs in place. Some of these KPIs are leading indicators and some are results. It is good to have both, although I always prefer leading as these drive the results.
Here are some of my favorite KPIs that I used when I ran or set up manufacturing companies.
Mergers and Acquisitions are not for the faint of heart. Any CEO who has navigated those waters will tell you it is a tremendous challenge to blend cultures, systems, processes and teams successfully. The statistic is 70-90% of M&A's fail -- that's a scary number! Instead of focusing on that metric, let's talk about numbers we should be measuring around M&A.
Every M&A deal starts with an incredible amount of due diligence. Are the cultures and values compatible? Do the product lines and customer bases support each other? Do the numbers work and take us down a path of growth? Ultimately, if the deal goes through, benefits have been seen by both parties. Now, it's up to the newly-merged company to both preserve the current value of the organization and meet growth projections. It's a delicate balance.