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Does Your Business Measure Up?

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One of the most critical functions of management is control. Control is an important function because it empowers managers to take action to minimize deviations from agreed standards after first determining how a business, function or system is performing against the standards. 

In business, managers exercise control after identifying gaps between predetermined goals and actual business performance. The act of control is when meaningful action is taken to get the business back on track. Control is thus directly linked to and dependent upon other key management functions of planning, organizing, and resource allocation.

KPIs, or Key Performance Indicators, are quantified measures that help managers understand the extent to which the business is tracking for success i.e. the achievement of goals. No matter what it measures, the aim of any KPI is to provide context around business performance against goals and useful insights on how to direct management attention and the company’s resources to improve it. Simply stated, KPIs help managers take effective and appropriate action to drive business performance.  
As for the number of KPIs, small businesses should require no more than 5 or 6 (less is more) to manage the business. However, in addition to the KPIs for the business, all key functional areas and all strategic initiatives should have KPIs that are directly linked to goals. And, individual employees should also use KPIs to measure their performance against agreed standards.

Selecting the right KPIs will depend on industry, business function and the specific goals that are being pursued. Individual businesses will thus have a set of KPIs that are unique. Some common KPI examples include:
  • Revenue growth rate
  • Gross margin
  • Customer satisfaction index
  • Sales conversion rate
  • Customer retention rate
  • Likes or shares (social media)
  • Return on Investment (ROI)
  • Current Ratio
  • Working Capital
Once you’ve selected your KPIs, you will want to track them using a real-time reporting tool. KPI tracking is usually done by extracting data to a spreadsheet or to professional dashboard software. Be encouraged to exercise transparency so that the entire company has insight into the current performance of the business. You’ll stand a better chance of keeping your staff aligned and focused on the goals of the business using this approach.

Contact me to learn more about effective use of Key Performance Indicators to drive success in your business today.

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Brian is a business executive turned-entrepreneur with more than 30 years of experience across many business functions. He holds a BS Degree in Chemical Engineering from Grove City College and an MBA from Baldwin Wallace College, and certifications from Case Western Reserve University, ActionCOACH, and The DeBono Institute. He is active on non-profit boards, in the Northeast Ohio community, and is a frequent volunteer with various charities and institutes.