Do you know your company's critical success factors? How about your leadership team?
Picture this: You are in the executive management team and want to know whether or not your company is performing well. What Key Performance Indicators (KPIs) should you be looking at on your dashboard? This is a question many clients ask our consulting team at RESULTS.com. Proponents of the “Balanced Scorecard” approach would suggest that you probably want to know things like:
- Is our product or service quality where it needs to be?
- Are we performing well financially?
- Are our customers happy?
- Are our employees happy?
There are aspects of the balanced scorecard approach that I disagree with, but I have no argument with the above list. These four things are perfectly valid measures of overall company performance; but that does not mean they translate into KPIs that you can track and drive on a daily, weekly or even monthly basis.
To me, there are two different ways of looking at what should be on the Executive team dashboard.
- Critical Success Factors - the KPIs that drive your operating model
- Governance - the results and outcomes of good company performance
#1: Critical Success Factors - KPIs that drive your unique operating model.
The first approach (which I recommend) is to think of your Executive Team KPIs as being the “Critical Success Factors” that drive your overall operating model. These are the numbers that pass what I call “The Tropical Island Test”.
Imagine you are the CEO and you’re taking an extended vacation on a remote tropical island. In order for you to relax and enjoy yourself, you want to keep tabs on the Critical Success Factors that drive your company’s operating model. You only get internet access once a week, when a Google balloon or a Facebook drone passes overhead. The internet coverage is so brief and weak you can receive only one message containing five numbers.
What 5 numbers would you want to see each week?
Start by identifying the key functional areas of your business (marketing, sales, operations, finance, customer service etc.). Each functional area of your business will have a small handful of KPIs that drive the outcomes you seek, and we recommend that clients measure 5 or fewer KPIs per functional area.
From these functional team KPIs, your organization as a whole should be able to whittle it down to a small subset of KPIs that you deem to be the “Critical Success Factors” - the key drivers of your overall operating model.
In my opinion, these Critical Success Factors are the true KPIs that the CEO and senior leadership (actually the whole company) should make visible on your dashboard and be paying close attention to on a weekly basis.
#2: Governance: The results and outcomes of your business performing well.
There is also a case for having measures that are a reflection of how well the leaders themselves are governing the business. These measures tend not to be things you can track on a daily or weekly basis, hence they would not pass the tropical island test, and are not really KPIs as we would define them. They are better classified as results / outcomes.
Financial results are not KPIs. They are the result of the activities you perform and how effectively you perform them. Of course results and outcomes are important. We absolutely need to measure them, after all, they are what we are striving for at the end of the day. There are some exceptions, but if your measure has a currency sign ($ € £ etc) in front of it, then it is probably not a KPI.
We often get asked for our generic Top 5 Leadership Team metrics. To be honest, it’s a challenge to answer this question, because the keys to success vary from industry to industry. You also need to take into account the industry lifecycle and company lifecycle. Even companies in the same industry may compete with very different operating models.
But to answer the question, here are the 5 of most common measures we see:
1. Revenue vs Forecast
Most companies set numerical targets for the financial year and track progress towards their achievement; cascading from an overall company level, down to individual sales rep level.
It is important to set numerical targets to strive for, but unless you operate in a highly predictable and stable business environment, the targets you set at the beginning of the financial year will quickly become divorced from reality. Your forecast is just your best guess, and it will be either too soft or too hard. We recommend that financial forecasts be reviewed and updated on a rolling quarterly basis to align them to the current reality, and to keep people motivated to achieve them.
Many companies like to track their growth, and a common approach is to measure, “How was revenue this month vs. revenue for the same month last year?” They set a target for their revenue (or number of new customers etc) to be a certain percentage greater than last year’s number over the same period.
3. Profit Margin
Your desire for profit depends on your market and your stage of business evolution. In an exploding new market category, companies will forgo profits in order to maximize growth and market share. In more mature market categories, profit maximization becomes more of a priority.
Some companies like to make their gross profit margin visible on the dashboard, while others prefer to track their net profit margin. Once again, these measures are not really KPIs, they are the “result” of good performance. Because these figures are sometimes sensitive in nature, we often see them expressed as percentages on the dashboard, rather than actual currency.
4. Net Promoter Score
Customer satisfaction is table stakes, customer loyalty is what you really want. Net Promoter Score (NPS) is a measure of customer loyalty. It starts by asking your customers the question, “On a scale of zero to ten, how likely are you to recommend us to someone else?” See this article for more information how to calculate NPS
Once you have a sufficient number of responses, you apply a formula to calculate your NPS score, which will fall somewhere between -100% to +100%. According to research from Bain and Co Higher NPS scores correlate with higher growth rates relative to other companies in an industry category. NPS scores higher than +50% are considered to be excellent.
In terms of NPS survey frequency; for infrequent purchasers, I would suggest you survey them after every purchase interaction, and then calculate your NPS score at the end of the month.. For regular customers, I suggest a monthly survey on a subset (e.g 10%) of your total customer base.
5. Employee Engagement
Just as we want our customers to be engaged, we also want our staff to be engaged. According to research from Gallup, companies with high employee engagement scores experience higher growth rates, and higher staff productivity.
There are many different survey instruments available to measure employee engagement. It is recommended that employee engagement surveys be done in a way that keeps individual employee responses anonymous - that is if you want the real truth.
It’s not like you can realistically survey your employees every week either, so it’s not really a KPI as we would define the term. Surveying employees once per quarter or once every six months seems to work well. You want to allow time between each survey so you can take action to address any issues that are identified.
People will only participate in surveys if they think it will make a difference to the way your company operates. Surveys are only as good as your willingness to take visible action. Thus, it is important to provide feedback to let survey responders know that:
you have heard them
you have identified common themes for improvement, and
you are taking visible action to make things better for everyone
So there you have it. The Top 5 most common executive team success measures we see. What do you think of these measures? How would your recommendations differ?