Every business, large or small, regardless of what it does, depends on its survival on getting certain things right on a regular basis. These things we call the critical success factors (CSFs).
At the top level, CSFs are processes and activities that:
- are important to acquiring and retaining customers
- generate revenue
- impact on efficiency and productivity
- determine team morale
To know how well your business is managing these CSFs, you need a system of measurement. The measures are known as key performance indicators (KPIs). It’s important to understand how you can develop a set of KPIs that will allow you to monitor performance on these critical processes and activities.
So what would make a useful KPI in your situation? Some apply to almost all businesses, such as a number of financial ratios. But in deciding others that would be useful to your particular business, there are a number of things to consider. To be worthwhile monitoring, the KPI should have these characteristics: reflect the goals of your business; be critical to the success of your business; be measurable; and point to the activities you might need to alter if things start to go off track.
In any entity there may be dozens of CSFs and literally hundreds of KPIs to track the business performance. Which ones are significant for any particular company at any particular time depends on what the business is planning to achieve and what its current situation is.
KPIs that might be relevant to any one of the CSFs above can be drawn from a number of processes. How you decide on which KPIs to track and act depends on:
Industry knowledge. What are the numbers that must be on track in a particular industry and where does the firm under review rate with regard to industry averages? What is happening in the industry that will have an effect on the firm’s viability?
Business plan objectives. A business plan based on a strategic planning exercise will provide the key objectives for the next planning period and so determine which CSFs to focus on.
Targeting selected drivers. Since it is unusual that all the drivers of any one CSF can be acted on at once, it is necessary to decide which to concentrate on to achieve the stated objective. For example, increasing the customer satisfaction score could involve a range of drivers such as greater customer contact, reduced delivery errors, better installation procedures, and product design improvement. These become your KPIs for measuring how the process is going.
Questions or comments?
Ali can be reached at ali@jonescpagroup.com
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