Putting metrics in key areas of your business can enable or disable your company worth
When you look to sell your company one day, the potential acquirer will ask you for what financial and non-financial KPI’s you and your team monitor. In asking this, they are looking for a few things. First is they want to see if you have built the internal discipline to monitor progress versus having a team that just works on motion. Second, they want to see how your company has progressed over time with select KPIs and do they see continuous performance improvements. And third, they want to see how your company compares to like companies in your industry so they will use your KPI’s to compare to industry benchmarks they might have.
We recommend to clients that they have KPIs in place. But, here are the rules of thumb:
- Number of KPIs – avoid having too many. No individual on your team should be monitoring more than 5. Collectively your team might be monitoring 15 KPI’s but one person might champion 4 and another 5, another 3, etc.
- Ownership of KPI’s – who is the champion or person that you deem the owner of monitoring each KPI and do they know they are the owner. If a KPI lacks a champion, it’s questionable whether that KPI is effective.
- Types of KPI’s – put KPI’s in place that help you see whether you’re making progress in your strategic plan. If you’re tracking KPI’s that aren’t linked to your company strategy, you run the risk of monitoring noise versus progress.
- Understanding of KPI’s – don’t commit assumicide in giving a KPI to an individual or a team only to miss that they really don’t understand how the particular KPI is calculated. We see this regularly in working with new clients. An employee, even at a senior level, is given a KPI but when you query whether they truly understand how their daily job and decision making directly influence the KPI, they don’t know. The KPI is given to them from say finance or HR or operations so they have visibility to the KPI but not full understanding of the formula behind how it’s being tracked.
- Embracing KPI’s – another place we see assumicide is when an owner or CEO assumes that an employee who has responsibility for a KPI embraces it. Meaning, they might fully understand how it’s calculated but they don’t agree with how it’s calculated. You might have an employee with a KPI related to order fulfillment or to new customer leads and they understand how the KPI is calculated but when asked whether they agree with the calculation, they don’t. They believe there is flaw in how the calculation is being done and therefore they don’t embrace the accuracy or effectiveness of the KPI.
KPI’s can be a great tool for helping build the long term worth of your company. But they must be well crafted and well managed. If they aren’t, they might be delivering the oppositive effect than what you want and could be damaging company worth. Conduct an audit of the KPI’s in your company to determine if they are enabling or disabling your progress.
