It's always been a fad world. But with the advent of the internet, and surge in social media, their traditionally slow adoption rate has found new fertile ground for accelerated growth. From 'waiting room magazines' desperately trying to drive low carb diets or the '6 pack in a week exercise plan' – we're now confronted by a tsunami of crazes. Everything from celebrity vloggers, Cryptocurrencies, Virtual Reality and fidget spinners.
And the world of performance management isn't immune. They even have their very own type of fad. These come in the form of fanciful methodologies. Almost universally advertising seductive claims, laced with the latest buzzwords, all neatly packaged, and rubber stamped by a 'guru' - complete with a cast iron guarantee of business growth (if only you buy the book and implement the 'mega methodology').
But, not all of these 'fads' are fanciful USPs. Some are grounded on tested principals, and some are extensions of old classics.
The Key Performance Indicator (KPI)
KPIs are measures used by organisations to evaluate their performance against strategic goals. However, KPIs are often misunderstood and are frequently used to describe any kind of measure or metric. They also suffer from poor constructed that deviates from their intended purpose. So how do companies create meaningful KPI Dashboards with KPIs that consistently track objectives and goals without the fads?
Great KPI Dashboards begin with SMART KPIs
(SMART) or more precisely Specific, Measurable, Attainable, Relevant, and Timely - first coined in the 1981 publication of 'management Review' by George T Doran .
The definition of SMART is (although there are variations):
- Specific - Clearly states the purpose of the KPI and what it is intended to measure. Being explicit ensures that everyone understands the goal and how it's going to be accomplished.
- Measurable - The goal must be measurable. For example, '50% market share' cannot be a goal unless you have the means to measure it.
- Achievable - KPIs need to be realistic. Being reasonable about your goals will help avoid disillusion.
- Relevant - The KPI must be relevant to show performance towards the goal. If the KPI cannot demonstrate relevance, then it's not a KPI.
- Timely - A Time-frame for the KPI keeps everyone focused on when the objective is to be realised.
Using this SMART process for defining your KPIs can help ensure that the KPIs on your Dashboards or KPI Reports are fit for purpose, relevant and ultimately successful.
Getting even SMARTER KPIs
Progress is often made by standing on the shoulders of giants. Or adding a couple of additional criteria to the SMART methodology:
- Evaluate - As business goals change its prudent to evaluate that the KPI is providing the right measurements - or is still strategically align to its intended purpose.
- Revise - Occasionally evaluations will pinpoint the need to revise the KPI.
How SMART objectives help in a real-world Example
A hugely important KPI that companies with subscription models should be not only be monitoring but should be looking to improve is customer retention rate (CRR). It's a critical measure in being able to sustain growth. Let's say an identified business objective would be to reduce the amount of paying customers that cancel. The goal would be to reduce cancellations or increase retention by 10% over the next 12 months.
So, using the SMARTER criteria how would this look?
- Specific: To reduce the number of cancellations and increase client retention.
- Measurable: The goal has quantifiable numbers such as the number of Customers at the start of the period (A), the number acquired during that period(B), and the number at the end of that period (C), Customer Retention Rate = ((C - B) / A) * 100.
- Achievable: Can we achieve this? – Its plausible with some changes in process, some incentives and customer service improvements the CRR can go from 6% to 10%.
- Relevant: This is certainly relevant as CRR for subscription models is a fundamental measurement that indicates growth or stagnation.
- Timely: Changes to process will take time. A 12-month progression to a 10% retention rate has various factors that will need time to implement. So, a lengthy period is more realistic.
- Evaluate: During the period we will monitor this quarterly as different incentives are introduced.
- Revise: We will revise this KPI, if, and when the goal appears to be too optimistic or pessimistic – or if any other external factors outside our influence affect the goal target.
Finally, using SMART criteria for designing KPIs for your dashboards provides a structured approach to KPI creation that minimizes mistakes in setting objectives and goals. Furthermore, they make measuring and performance monitoring more accurate and relevant.