During recent conversations with my clients, the subject of key performance indicators (KPIs) keeps coming up.
Either they are almost joyful to say that they now have clear, measurable key performance indicators in place for all of their managers and employees and their conversations and meetings are so much more productive, as is their company performance — or, as in the case of one client, they really want to have a way to measure team members’ performance but are challenged to figure out how to do that.
So, we devoted one of our meetings to creating meaningful KPIs for key positions. Here is an overview of the process I’ve developed:
My first question is always, “Why does the position exist?” That’s not a title, or a job description, but really the “why?” As an example, for a sales leader or salesperson, the “why” is to grow sales, both top line and bottom line.
For someone in finance, it may be to produce accurate and timely financial statements and to advise the CEO (depending on the level). In operations, it should be to fulfill customers’ orders, on time, with acceptable quality and minimal waste.
After we determine the reason the position exists, we must identify the five to seven High Payoff Activities (HPAs) for the position. Again, it’s not a job description, but rather the key activities the person must do in order to have measurable success in their position.
In a sales position, here are some examples of the most important duties (HPAs) for the position:
- Business Development (develop and close new business revenue)
- Maintain and grow business from existing clients
- Identify new opportunities for business and products/services
- Maintain cordial business relationships (rapport)
- Communicate challenges and feedback both to clients and to internal stakeholders to maintain good customer relations.
And now – the fun part – you are now set up for success to more easily create meaningful KPIs, based on the HPAs.
I always suggest collaborative negotiation when developing KPIs. If, as a boss, you determine the exact KPIs for each position, without input or at least a conversation with your team members, you will be missing the buy-in from them. Team member buy-in gives employees the feeling that they have a say in their own success.
For the five HPAs above, here would be some potential KPIs:
- New client revenue generated (in dollars by quarter, or annually)
- Existing client growth YOY (dollars, units, percentage)
- Number of new business opportunities and revenue or profit potential
- Number of in-person client meetings, or handwritten notes sent to clients
- Number of problems/challenges reported, and were they resolved?
As you can see, each of the above is a number, and an easy-to-calculate number. Easy-to-calculate is the key. If you make KPIs too complicated to calculate, then your trust level will diminish. Based on my experience, when KPIs are easy for the employee to work out themselves, and if there is a regular cadence to report and discuss them, then performance improves.
When your team members hit or exceed their KPIs, don’t miss the opportunity to celebrate, publicly. And don’t worry, if everyone on your team doesn’t achieve their KPIs, then a public celebration of those who do make their numbers can be an incentive for everyone else to step up their game.
- Karen Caplan is an executive coach and industry consultant, and former CEO and owner of California-based Frieda’s Branded Produce.
