“Imagine you’re on a desert island somewhere. None of you can talk to anyone, access e-mail, or talk on the phone. All you have is a piece of paper with a handful of numbers on it. These numbers must allow you to have an absolute pulse on your business. What are all of the numbers that must be on that piece of paper?”Gino Wickman is the author of Traction: Get a Grip on Your Business.
Data supports you and your organization’s ability to have productive communication and decision making. Data is one of the Six Key Components of the Entrepreneurial Operating System® (EOS®). In his book, Traction: Get a Grip on Your Business, Gino Wickman details EOS® as a complete tool kit to help leadership teams improve and grow their companies. To learn more about EOS®, you can read our summary of Traction.
Data is the handful of metrics that you and your people rely on to indicate the present, identify potential issues, and predict the future. We should choose to use the data to guide our discussions and decisions over assumptions, opinions, and emotions.
Key Performance Indicator (KPI)
A KPI is defined as a “quantifiable measure used to evaluate the success of an individual, organization, employee, etc. in meeting objectives for performance.”
As Peter Drucker once said, “What gets measured gets managed.” Our intention is to choose the Key Performance Indicators (KPIs) that provide an accurate snapshot of your projects or company. The KPIs will indicate the performance and health of your project or company as a whole, processes within, or participating individuals. When KPIs are used successfully, they provide a target or desired outcome for performance to work to achieve.
Rules for KPIs:
- Indicate objective improvement toward achieving the desired outcome
- Measure the data necessary to help make better decisions
- Provide a basis to compare the changes in performance over time
- Track individual metrics such as hours worked, tasks completed, emails sent, project completion percentage, personal happiness, etc.
- Track company metrics like sales revenue, sales made, calls made, customer satisfaction, products delivered, on-time delivery percentage, project performance, work efficiency, customer issues, cash flow, etc.
Example: Suppose you wanted to optimize your human performance in terms of fitness, nutrition, etc. Examples for possible KPIs could include the number of steps taken, average time slept, body weight, caloric intake, macronutrient intake, resting heart rate, time spent working out, etc.
A Scorecard provides a weekly picture for you or your business using 5 to 15 high-level KPIs.
This handful of metrics on your Scorecard will provide a pulse for you or your business and give the ability to observe the present performance. Additionally, it will allow you to make future predictions, identify issues, and take actions in the right direction.
Every week, you or your leadership team should review the Scorecard as an action item. The Scoreboard KPIs will show whether your projects or specific company activities are progressing toward their goals or are off track.
The numbers should be weekly activity-based KPIs and not higher-level financial information or lagging indicators like Profit and Loss (P and L). A lagging indicator shows the success or failure after the fact, and then it may be too late.
How to Create a Scorecard:
- Decide and list all of the KPIs that you need to track weekly to have a pulse on your desired outcome or business as a whole. You can be overwhelmed by information, so there should only be five to 15 KPIs used.
- List the individual that is accountable for each KPI, as this person is responsible for reporting the metric and provide context. If you are doing a personal project, then you can skip this step, as you are responsible.
- Decide upon the desired outcome for each KPI goal for the week. These weekly goals should correlate to a higher-level project or vision.
- Decide the individual that is responsible for acquiring and synthesizing the KPIs into the Scorecard for the leadership team review. If you are operating alone, then you are responsible for gathering the data.
- Use the Scorecard to see if you are making progress and gaining traction toward your vision. You should keep track of the past weeks to observe patterns and trends. Additionally, you should highlight KPIs that missing their targets to be easily noticeable.
Over time, the Scorecard will evolve to show KPIs that better indicate the pulse of the business. Additionally, you will be able to observe patterns and trends to help you predict future performance. The data should allow you or your team to have productive discussions and make better decisions.
A Measurable is “a single, meaningful, measurable number [KPI] to guide” individuals in your organization.
Within an organization, everyone should have a measurable or KPI specific to them to guide their work. You can use the roles on your organization’s Accountability Chart to help formulate numbers for your people. These KPIs will enable managers to promote transparency and accountability within their respective departments.
Eight Benefits to Providing Everyone with a Measurable KPI:
- Remove subjectivity in the interaction between a manager and their subordinates. The KPI becomes a communication tool between them to allow for objective discussion.
- Create accountability as everyone knows what the expectations are for their work. Expectations are defined through the clarity of numbers.
- Instills enthusiasm as responsible people appreciate numbers to guide them. The Right People like having goals to work toward and be held accountable to.
- Create clarity and commitment on an individual basis. Each employee understands their clearly defined KPI and commits to achieving that target.
- Create competition among individuals and teams to perform within the organization. The leadership team can communicate company-wide targets to all teams to promote healthy competition.
- Produce results as the numbers that get focused on will improve over time. “Anything that is measured and watched, improves,” – Bob Parson.
- Create teamwork among individuals to work together to achieve their numbers. Fellow teammates will criticize those individuals who don’t fairly contribute to the success of the team.
- Solve problems faster as numbers can lead to proactive and objective problem-solving. When a KPI is missing a target, it can indicate that an underlying problem exists. It allows the individual responsible for the KPI to solve the issue proactively.