Traditional KPIs are sometimes narrow in their focus: they might not catch the real issues affecting business performance, may focus only on one dimension, or might not be useful for making predictions about the future
BY NIKKI SUMMERS
We all know how the coronavirus pandemic has brought uncertainty to people’s lives and business’s operations throughout Kenya over the course of the year.
We also understand that Kenya’s economy is likely to remain under pressure for some time. In these uncertain conditions, business planning based on accurate and up to date information is even more important than it usually is.
Businesses, luckily, have a wealth of real-time business data at their fingertips, thanks to the wider use of automated software. But as we try to navigate these strange times, it is essential for a medium business or scale-up to ensure it is focusing on the right metrics. It is all too easy to expend energy on measuring and improving the wrong key performance indicators (KPIs).
For a starting point, traditional KPIs are sometimes narrow in their focus. They might not catch the real issues that are affecting business performance, may focus only on one dimension, or might not be useful for making predictions about the future.
For instance, many marketing departments place a heavy emphasis on net promoter score (NPS). This can be an invaluable metric, but could there be other metrics that are just as important, such as predictive data about customer churn? Or if a sales KPI is down, can the business look at the problem from a fulfillment perspective, or a customer service perspective to understand where the issue originated?
KPIs can be demotivating, too. For example, the sales team may have a KPI for a key product line. A competitor drops the price of their similar product. As quickly as the sales team responds, their top-line will be affected for the current financial period. When the negative data is fed back to the sales team, they may feel discouraged.
If you want to drive more value from your KPIs, you could look at moving from a measurement culture to a growth culture. This means taking a step back and questioning what the purpose of the metric is. What will your employees need to perform better? What do your customers want and how do they feel about your business, and how can you measure that?
With this in mind, you can start to gather the right data and use the correct benchmarks for your business goals. Rather than drowning yourself in data points, you will make good, fast decisions based on actionable information. The key is to avoid analysis-paralysis and to align your metrics behind your strategy – rather than doing it the other way around.
Another success factor is responding to information in real-time. Many businesses continue to act on historical reports about what happened days, weeks, or even months ago. Instead of responding to today’s trends, they are reacting to old events. The fresher the insights, the better the potential for making the right decisions.
It’s also important to break down organisational siloes. Different departments may run systems that have different approaches to data and KPIs. Such data might not catch issues that are affecting business performance, may focus only on one dimension, or might not be useful for forecasting.
Given the times we live in, many businesses are falling prey to short-term thinking. But now that we are moving beyond the initial shock of the lockdowns, it’s important to balance short-term operational responses with long term strategic planning. It’s wise, therefore, to have KPIs that enable the business to track immediate tactical needs such as cash flow planning as well as its progress towards longer term goals such as customer retention and growth of market share.
Evolving the finance function to be able to gather and benefit from real-time insights starts with putting the right technology and processes in place. An integrated business solution can provide specialised, accurate reporting based on a holistic view of the business.
This enables decision-makers to identify trends and opportunities and to track, analyse and manage customer and supplier interactions for fast and effective decision-making.
Writer is regional director Sage, East & West Africa