People may presume that business is about getting results and that KPIS are just a way to get a result. And while in some cases that is true, we’d tend to argue that business is more about creating a stronger community and harbouring positive change.
Recently on the Blirt podcast, The Digital Transformation Show, we’ve unpacked our approach to not only setting KPI’s but how to think through them. You can listen to that episode here.
So when we ask the question ‘are KPIs all about delivering results?’ The answer is actually, no.
KPIs aren’t about getting results?
KPIs are the very things that help us to understand whether we are getting the right type of result. We need to understand what matters, what doesn’t, what measurements are used and understand that all KPIS aren’t equal.
The approach to setting key performance indicators needs a mixture of both science and strategy. We do this by using a categorisation framework called Results, Objectives and Activities.
IMPORTANT: If you, as an emerging leader can understand these principles you hold will hold a competitive advantage over those who don’t. You will have the ability to drive and influence change inside your organisation with clarity (so keep reading).
Now this might be scary to hear as a manager but, nobody can manage results. Regardless of your business objective, you actually do not have the ability to directly manage and control the outcome.
Results are the very things that happen to you as a result of other things you’ve done. That is the ah-hah moment.
When you realise that you cannot control the result, it should feel like a weight being lifted off your shoulders. While we hold ourselves accountable to those results, we shouldn’t destroy ourselves over them simply because they happen – to us.
Your organisation wants to hit $50 million in revenue. The teams assemble and get to market but what happens when:
- There is a change in the market place
- A federal law is changed
- There is a PR incident
- A natural disaster affects raw material suppliers
Results happen to you as a RESULT of the way you run your business, not directly.
“It is the set of the sails, not the direction of the wind that determines which way we will go”
– Jim Rohn
If we want a result, we need to keep adapting to the way that things are. As a leader and manager, this is a mental free pass. When we understand we can influence results but not control them, we can avoid the negative stress that it produces for ourselves and our teams and focus on the things that matter.
Objectives are goals with consent. A mutually agreeable goal that two or more parties sign up to and achieve together. Results come from achieving one or many objectives, and to maximise the likelihood of achieving that objective you require all involved parties to agree to it. All parties must sign up.
Now here’s the kicker – you can’t manage objectives (ah-hah moment number 2).
You can manage systems and process and you can only lead people, but you cannot manage objectives. This is a crucial missing piece of the puzzle for millions of leaders. You still don’t directly control the objective as It’s something that you are striving toward.
The only thing we can control – are the activities we do.
The only thing you directly control are activities.
This is where our best KPI’s should live. If we manage our activities well enough, they’ll lead us to those shared objectives, and by hitting those objectives gives us the best chance for achieving the results.
Real World Example
The result $1mil profit which requires 120 product sales.
The objective would then be, in order to make 120 sales, we need to make 10 sales per month. Another objective may be to only discount up to 10% so to ensure the profit target is not compromised.
Therefore two mutually agreeable objectives are the output:
- The sales plan (sales volumes)
- Pricing plan (guidelines for selling prices)
Can someone state that they guarantee those 10 sales per month? Of course not. If they could they would own the market and be able to tell the future.
Can someone state that they guarantee they won’t discount more than 10%. Yes they can. This is a good objective to set, as you can have more influence over the outcome.
However, what impact will the cap on discounting have on sales volume? Is it worth increase discounting to increase sales volume? Based on current sales run-rate, what do we need to leverage? One of the management decisions with mutual consent on the objective would be then to say, for this month we can actually make 12 sales by awarding a 15% discount to two product orders.
Great managers can make the decision to break that standing objective in order to work further toward the result. This a great definition of good leadership in management.
But can someone state that they guarantee they’ll achieve their daily activities? Yes they can.
- To make 1 sale
- I need to secure 5 sales appointments
- In order to make 5 sales appointments I need to make 10 phone calls
- So if I need to make 10 sales per month
- I need to make 50 sales appointment per month
- Which means I need to make 100 phone calls per month
If the sale person can effectively track their day to day activities, they can have full control over their outputs. While this doesn’t guarantee achieving an objective or result, it will give you the best possible chance.
Leading vs Lagging Indicators
We now understand the three buckets of categorisation that we design KPI’s around, it’s important to now understand that some of those KPIs will be Leading and Lagging KPIs.
These are the things that happen to us. These are results and objectives in a past tense. Looking back we can see what happened and by using a lagging indicator we can measure how effective those results and objectives were, for the purpose of contextualising what we do next.
Lagging Indicator examples:
- Lagging – total sales volume
- Growth in contracts
- Revenue from new clients
- Acquisition costs
- Sales cycle lengths
These are all metrics telling us how we’ve performed in the past
This tells us how we’re going and how likely we are to achieve our results. Leading indicators are always activities. I.e. a sales call, response time on customer support, number of meetings, number of quotes or proposals. These are all things we can track and report on but the mere fact that if we achieve that activity in sufficient volume, we actively reduce the risk of not hitting objectives.
Leading indicator examples
- Sales meetings
- Number of calls
- Opportunities created
- Props sent
- Quotes sent
- Trading achieved
- Compliance to sales process
- Showing up on time
These are all metrics telling us how we’re tracking toward our objectives.
So what can you do to implement some of these changes? Start by casting the vision toward result and ensure there is mutual agreement on objectives – then manage, coach and build up your team so they can be better performers.
If you need assistance setting KPIs inside your organisation, speak with us.
Alternatively you can download the ‘Leading vs Lagging Indicators’ eBook.