Goals and objectives are set for any individual or team to ensure that the Organization meets its goals. It follows logically then, that accomplishment of individual goals is n necessary to ensure Organizational goals are met. Setting goals and objectives for individual and teams in a Startup, is not merely a good idea – it is necessary. However, simply setting goals and objectives is not sufficient.
Once goals are set, performance has to be measured. Many Organizations make the fundamental mistake of being trapped in ‘emotional’ aspects of performance measurement. Employees claim that they are ‘working hard’ and working long hours. Human Resources can generate data to back up this claim.
However, in a business working hard by itself is not accomplishment of a goal. It is one of many things an employee needs to do. The key questions that Startup owners and CEOs need to ask are:
• Is everyone working on the right things?
• Does their work achieve the outcomes that your team and organization need?
Key Performance Indicators or ‘KPIs’ can enable Startup owners or managers, to answer the above questions.
What is a KPI?
A KPI is a quantifiable metric that measures how well and Organization is achieving its stated goals and objectives.
For example, if one of your objectives is to enhance distribution reach for your Company’s range of products, the Key Performance Indicator that you will use to measure performance of success in this area is the number of new towns or villages where your products are launched, or the number of new outlets (retailers) who have started stocking your product. Consequently, the corresponding goals related to this KPI at a team or individual level would be the number of new towns or new outlets opened up.
It is critical that individual KPIs are linked to Organizational KPIs. In an ideal scenario, the process starts from the business vision and KPIs cascade down all the way to individual KPIs.
In the above figure, CSFs are ‘Critical Success Factors’ – the areas of activity in which your Company must perform in order to be successful. KPIs are the means by which these activities can be measured. The actions below the KPI in the above pyramid are the specific goals, tasks or projects that need to be completed to achieve the KPI related goal.
Another indicator of financial health of a distribution business could be the status of receivables – money that your customers (dealers or distributors) owe you against sales made to them. This is a Critical Success Factor. Because, collecting full payments in a timely manner for all sales made to customers, is critical. If payments are not collected on time, the company’s cash flow is adversely affected – the company is stripped of its cash and therefore its ability to do business.
In the above example, the status of receivables becomes the KPI. The goal set for an individual or team could be an upper limit on the absolute amount of money your customers owe you, or the receivables measured as number of sales days’ equivalent. (If your monthly sales are Rs 10 crores and if at the end of any month, your customers put together owe you Rs. 12 crores, your receivables are 12 days).
Remember – KPIs are indicators of performance in various aspects of the business performance. Periodic review of a set of KPIs indicates whether the business performance is on track to meet the business goals, which is turn, would enable the company to achieve its strategic objectives and finally its vision.
While innumerable aspects of business performance can be and are in fact measured and reported as a routine practice, the KPIs are the ‘Key indicators or performance directly linked to the Critical Success Factors for business survival or growth. Therefore, typically for any Company, business unit or team performance the number of Key Performance Indicators should be between 5 and 10. This number ensures that all critical aspects of business performance have been covered for periodic review while at the same time not making the review process or scope very unwieldy.
Performance against KPIs can be measured in specific, quantitative terms, eliminating any scope for subjectivity. KPIs are the bottom-line of the business health. And since the measurement is specific and quantifiable, KPIs are also indicators of individual or team performance. Accordingly, various performance management related measures like incentives, awards etc. can be directly linked to the status of the performance Vis a Vis the KPIs.
In summary – KPIs are tools as well as indicators for performance measurement. And measurement of performance against Critical Success Factors is critical. As the old saying goes – “What gets measured gets done !”
Cover Image by Mohamed Hassan from Pixabay
Puneet Mathur is a Certified Life Coach, Certified Business Coach and a Certified Organization Development Coach. He specialises in helping business leaders to transform their enterprise into a professionally run Company by implementing state of art systems and processes, and building a highly motivated team
Puneet is an experienced business leader, with about 30 years of Corporate Leadership experience in reputed Multi National and Indian Companies in the FMCG and Chemicals sector.
He started his career with Britannia Industries as a Management Trainee. He has worked varied roles in Britannia Industries Ltd. Marico Industries Ltd. Coca Cola, and the Jubilant Bhartia Group. His last corporate stint was with Jubilant Industries Ltd. As Senior Vice President and Business Head of a strategic business unit (SBU, Puneet supervised Global Business Development, Global Key Account Management, Manufacturing R&D & New Product Development.
Puneet has extensive experience in Sales & Distribution of FMCG products and Speciality Chemicals (B2B business). He has a rich experience of expanding distribution reach, Sales Force Productivity, International Business Development, and Exports.