Someone once explained to me the concept of KPIs by comparing it to the cockpit of an aircraft. If you look at a cockpit, the number of knobs, lights, and switches is quite intimidating. If you’ve never flown an aircraft or have little experience, you would have no idea which indicators are the most important. You would freeze up and never take off. Many leaders experience this daily, and their businesses never get off the ground.
Yet, aircraft are like businesses in that there are only a handful of 3 - 5 key indicators to track on a regular basis. These are often called the “precious few” or “critical indicators”. If the critical indicators are in line, you are in good shape. However, there are always other areas of the aircraft that can cause you trouble. If they are operating properly, you have nothing to worry about. If they change in any way, you need to be notified to make different decisions to counter the issue.
Businesses are the same. There are certainly key areas of the business that you would like to track on a regular basis. The cadence will change according to the impact to the business and the need and ability to counter the impact on a timely basis. While some KPIs are tracked quarterly, others may be tracked hourly.
Not unlike aircraft, there are typically 3 – 5 KPIs that need to be tracked on a regular basis. These are the “critical indicators” that will make or break the business. Not unlike a cockpit, there are other areas of the business that only impact the company when there is a significant change. These KPIs may seem less significant until there is a change, then they become the most critical and like a pilot, the leader must know how to react to counter the change.
There is a relationship between the size of company and the number of relevant KPIs. At early stages of companies, a few KPIs are typically sufficient. It is not uncommon for companies to begin to adopt more KPIs as they experience the benefit of running the company with a proper dashboard.
There may be a day when companies find they have too many KPIs. At this stage, leaders need to review what they are tracking and what is helping them make decisions. If there are KPIs that never change, but would impact the business if they did, this can be tracked within the organization, but only presented to leadership if it were to change greater than a defined amount.
While there are certainly KPIs that are common across companies, there can also be unique KPIs to help differentiate on company or industry from another. You can access a free comprehensive list of KPIs to consider for each department to help get you started.
While you may not be flying an aircraft today, some people feel leading a company just as challenging. Proper dashboards will help improve your operating efficiency and effectiveness and let you know when you are doing the right things right.
Dale Robinette will be leading a Scaling Up Accelerator next quarter This is a one year accelerated program for up to 5 executive teams that want to lean in and scale their business. We will be addressing the four disciplines of business including, People, Strategy, Execution, and Cash with four quarterly offsites. For more information, please check out San Diego Accelerator.