Developing an Effective Custom KPI Strategy
“The KPI is only as valuable as the action it inspires.” – Klipfolio
Adopting an industry-standard KPI strategy will not guarantee results. To be effective, it has to be based on the actual data and business context the company operates in. Not only that, but the data must be independent of the external factors which the enterprise has no control over, such as work suspensions due to weather conditions. It must be purely reflective of company performance or output alone. It also needs to be confined to a definite time-frame that can be accurately divided into key checkpoints to make it work.
Step 1: Knowing the Points for Measuring Performance
The first step to identifying a business KPI is considering the processes the management team already utilizes. Performance in KPI refers to the outcome of a given task in a particular business function. It could be influenced by certain factors that could be tracked, measured, and controlled.
These are the things to focus on when looking for ways to measure your business KPI:
1. Input – the effort that is put into the project to produce an output
Example: The number of sales calls made per day.
2. Output – the product or result of the task
Example: The number of sales closed in a month.
3. Activity – the transformation or change caused by the effort.
Example: The increase in sales for the year.
4. Mechanism – the performers and enablers of executing the activity.
Example: The motivation of the sales representative and the efficiency of the CMS system used.
5. Control – the overseer of the project
Example: The feedback on the manager’s effectiveness
6. Time – the length and duration of the project.
Example: The estimated time vs. actual time of completion.
Step 2: Identifying the Critical Success Factors (CSF)
The next step is to consider which factors are useful by assessing the company’s progress in its strategies. These factors are called critical success factors. They are the variables or circumstances that enable businesses to achieve positive outcomes for their programs. In the cause and effect relationship, these factors are the cause. Pitting the factors against each other will help teams discern which variables produce a causal effect and which are purely coincidental.
Although it would be best to conduct research and analysis to accurately identify CSFs, it is often too costly to implement for most businesses. Managers could conduct a survey themselves to help them identify which habits and behaviors a high-performing employee exhibits that can affect the growth in sales. Another way is to observe competitors and the business practices they’ve adopted to improve their own processes.
The Balance offers these questions to help with this part of identifying your critical success factors:
- What variables or factors are likely to impact our desired outcome?
- Are we able to perform statistical analysis based on past data?
- Which changes in behavior must occur to create the desired outcomes?
- What conditions must exist or change to create the desired outcomes?
- Which skills do we need to add or acquire to achieve success?
- What tools must we add or master to allow us to achieve our goals?
Step 3: Abiding by The KPI Criteria
Taking the CSFs, it is now imperative to translate those factors into measurable data. This is where the KPI steps in, in order to help businesses have insights on how to make the necessary arrangements to manipulate the environment with proxy success factors.
For example, a company might be wondering why their sales are dropping. They trace it back to lowered customer satisfaction in their customer service. Apparently, the customers feel they are being set aside by the customer support because they sense they are being rushed by the agents. Now the question is: What would make customer representatives more patient with customers?
Finding the success factor also needs to observe how the employees are feeling. If it is the anxiety they feel that makes them rush through their customers, then dropping down quotas and increasing staff might actually end up being more lucrative than saving on headcount. If it is just a couple of underperforming agents, then the manager might need to talk to the employees for further orientation.
Like any other management or development strategy, an effective KPI strategy should be S.M.A.R.T.:
1. Specific. Do you have a specific end-goal?
The KPI objectives should be specific in order to communicate its importance to key business stakeholders and cascade the instructions clearly to each employee involved. It also has to meet business objectives or else it will turn into a liability.
2. Measurable. Can you measure your progress towards that goal?
Whenever possible, whether measuring quantity or quality output, the data is best represented in the form of numbers. Evaluate using numerical scales, such as “in the scale of one to ten, how happy are you with your work?”
3. Achievable. Is the goal realistic?
The KPI results should offer solutions that can be applied seamlessly or gradually to existing company processes. Analyzing and adjusting expectations to current progress and reviewing targets with the team could help set attainable goals. However, be wary of setting it too low.
4. Relevant. Is the goal relevant to the organization?
The KPIs should line up with the company vision and mission. It should also be updated with company advancements, such as opening new shipping avenues for a wider customer base. In these situations, KPIs need to adapt or else it will fail to accommodate the new potential market.
5. Time-bound. What are the time-frames needed to achieve this goal?
Set both short-term and long-term targets. KPI strategies start by looking into the long-term goals and breaking it down into easier tasks, working backwards.
Step 4: Factoring in the Business Context
A good understanding of company objectives and its processes is imperative to finding your KPI. This is to make it effective and it is also partly concerned with keeping in line with the agreed objectives of other stakeholders in the business. Afterall, the last step for the process is communicating the strategy and distributing the reports to the entire company. Just so, the KPIs should be convincing, relevant, and clear enough to be communicated and agreed with by those concerned with helping in its execution: from investors to workers.
Here are some questions to run through on how to define a comprehensive KPI for your business partners.
1. What is the goal?
Example: Increase customer base by 20% this year
2. Why does it matter?
Example: To be the market leader, which is the vision of the company
3. How will its progress be measured?
Example: By tracking sales revenue and customer demographics
4. How could the outcome be influenced?
Example: By lowering product prices, delivering the best customer service, investing on promotions, offering recommendations, and rewarding customer loyalty.
5. Who is responsible for the outcome?
Example: Head of Sales Operations and Customer Relations
6. What will indicate its achievement?
Example: Increased customer base by 20% for the year
7. How often will the progress need to be reviewed until outcome?
KPI Strategy Challenges and Best Practices
Always remember that KPIs are like health check-ups. They show present facts about the business status, not future projections. As such, they should initiate and evolve with the changes of your business processes. Implementing a KPI strategy reporting involves revisiting and revising its measures.
Here are the challenges in creating a KPI strategy:
- Undefined business objectives leading to reliance on finances for guidance.
- Reliance on finance indicators leading to lack of insight on other important aspects of the business
- Lack of insight in all aspects of the business leading to conflicting internal priorities and much too many unnecessary KPI tracking
- Performance incentives leading to conflicts of interest and biased results
- Confusing success indicators with coincidental factors leading to miscalculations
- Limitations in performance tracking systems leading to data inaccuracies
Businesses are more than just about making money. It needs to give something first, to get something back. After all, revenue is just half of the story. A business needs to establish its value to its customers first, and they do this by providing a service or a product.
Before you work on your strategy, make sure that the business already has established and well-defined business processes to track and that it specifies set requirements for the KPI objectives to align with. KPIs also need to be measurable, whether the data is quantitative or qualitative. It should also be meaningful and comprehensive to those who review it.
Is Your KPI Telling You to Outsource Your Contact Center?
KPIs are important to the BPO industry. As business solutions providers, It is crucial that they perform well to serve other businesses. In this, they can prove their worth to partner companies and remain in business. This is why outsourcers are proficient in the language of developing processes with effective KPI systems in place.
Anderson Group BPO Inc. offers business process outsourcing solutions for companies looking to restructure and optimize their workflows cost-effectively. We could help you support your customers through inbound calls, outbound calls, email, chat, and social media management. Our skilled back-office team can also help you keep your operations flawless with data entry, data cleansing, data analysis, and market research.
Reach out to us and find out more about our services.