Test Scores, Touchdowns, and Customer Satisfaction
The art of understanding KPIs
Whether it’s education, sports, or business we need to know how well we’re doing. We need to be able to measure performance. These measurements typically consist of two elements: first, the metric, or what we’re going to measure (the number of questions answered correctly; how many touchdowns or points scored; or how our customers rate us on a scale of 1 to 10) and second, the expectation for those results or level of performance.
In business, many owners do a decent job of defining the metrics used to track the overall performance of the organization. These Key Performance Indicators (KPIs) are typically total revenue, gross profit percentage, and net profit. More enlightened managers will add measures for direct labor cost, cash flow, and non-financial metrics like employee turnover, training provided, customer satisfaction, and growth in customers or market share. These metrics, or performance indicators, provide not only a measure of the overall business, but when targets are established on a monthly and annual basis, they also serve to set expectations of performance that can be tied to the position within the organization that is responsible for their achievement.
Effective employee performance management begins with establishing the areas of responsibility—typically defined in a job description—and clearly defined expectations for the actions, deliverables, or results that can be measured. This is where the effective use of KPIs across all functions of the business (finance; HR; sales and marketing; operations) and at all levels of the organization is critical.
As with the metrics commonly used for the overall business, in many cases owners and managers do a sufficient job identifying the metrics and establishing targets or expectations for frontline employees. Restoration technicians are expected to complete defined aspects of a job within a set number of hours. Project managers are expected to see that jobs are completed within the committed schedule and at a gross profit margin at least equal to the target percentage set in the business plan. Levels of customer satisfaction should be included in the metrics for these positions. Feedback from your customers is powerful information on how effectively your “face to the customer” employees are delivering a positive experience in addition to timely and high-quality workmanship. Every effort needs to be made to get an evaluation survey into the hands of each customer, either electronically or in hard copy, and to follow up to retrieve as many completed surveys as possible.
Where gaps often exist in establishing the metrics that will be used to measure employee performance and set the expectations for the level of performance is with department heads and other management positions, especially in non-operations functions. Let’s examine some performance indicators that are most appropriate for evaluating these employees.
The overall business performance measures mentioned earlier are typically financial metrics. However, there are metrics that are appropriate at the bookkeeper or accountant level.
- Invoice lag – The time between the job being completed and creation of the final invoice; measured in days.
- Accounts Receivable – Measured both as “days outstanding” based on the past 90 days invoicing rate and in terms of aging. It is common to set a percent of total receivables or a dollar amount as the upper limit for receivables in the “over 60 days” categories.
- Creation of accurate income statement and balance sheet reports by the X work day of each month.
Whether this is a full-time position or a responsibility that falls under an administration manager, there are aspects of the HR function that can be measured objectively.
- Completion of training for all managers on how to conduct effective performance reviews.
- Creating and implementing a standardized hiring process, including assessment criteria for candidates by position.
- Conducting an exit interview for each employee who is separated from the company.
Sales and Marketing
Whoever is responsible fir managing the business development function has metrics that are applicable to that specific position.
- Holding consistent, weekly sales meetings with agendas published in advance.
- Spending a minimum of two days per month riding with each business development rep. to assess performance and coach technique.
- Completing X number of customer meetings per month with designated strategic accounts.
As organizations grow, more frontline employees are added and team leaders, supervisors, or production managers are put in place to adequately train, manage, develop, and motivate the increasing number of team members. While these supervisory personnel are ultimately responsible for the frontline associates achieving target levels of performance, there are metrics apart from those we covered earlier for operations that are important for tracking the development and growth of their people.
- Conducting X number of team meetings each week.
- Doing ride-a-longs or completing a weekly performance evaluation for each team member.
- Providing X hours of training for team members each month.
The important point is that while it may be accurate to say that everyone in operations is responsible for the company reaching its revenue goal and gross profit percentage targets, there are responsibilities—typically defined in a job description for each specific position—owned by each person with supervisory responsibility that can be transformed into performance metrics with measurable, defined expectations or targets.
When defining the metrics to be used to measure individual employee performance, which is especially critical if the metrics are included as part of a compensation model used to calculate bonuses or commission payments, keep in mind balance is key. Balance in the sense that employees will focus on the elements of their job, or their performance, that will result in their KPIs being met or exceeded. If the metrics in place for a specific position, for example, focus only on the quantity of work completed without measuring quality or timeliness, the results will likely be a performance that makes the employee’s numbers look good but does not serve the overall interests of the business.
With appropriate metrics in place for each function, department, and level within an organization you have the foundation for effective employee motivation, performance assessment, and development. This is a clear example of what is meant by working on your business rather than in it. These performance indicators, including expectations that are consistent with the organization’s business plan, combined with timely and accurate reporting of actual performance, will lead to greater employee engagement, higher job satisfaction, and improved overall performance.
No matter whether it’s sports, education, or business, we need to know how well we’re doing if we’re going to provide consistent feedback to our team members.