Posted by Peder Enhorning
July 8, 2014
Tracking business success is difficult. And most businesses make the mistake of measuring what has already happened instead of what influences those results. Setting personal, departmental or corporate goals is fundamental to most people, but measuring how we perform against those values is not enough. Just measuring high level results such as revenue or number of customers is a mistake because it doesn’t answer how we got there and what should be done next.
Instead, we need to evaluate the Events that Caused those results. Certainly, we can conclude that if Revenue increased to meet our goal, we succeeded, but we don’t know what we did that caused it.
It’s much more effective to measure the actions your customers or prospects take than the end result. These actions include conversions of website visitors to paying customers and how well we are doing to influence that conversion.
I’m not saying we should forget about things like the number of new customers acquired in the last month or the number of items sold, but we need to inquire further. Those are the Effects of the activities we had. If we want to influence change, we need to be measuring the Causes.
Understanding what to measure begins by appreciating the logical structure of decision making. It starts by knowing the concepts and inter-relationship of goals, strategies, critical success factors, tactics and KPIs (key performance indicators).
These five elements are fundamental when establishing what to measure and how to track it, and they are all connected. The important thing to note is that the subordinate activity is driven by the one above.
Here are the definitions and relationships:
> A goal is “what” you want to accomplish. It is a broad desired outcome that states where you want to go rather than how you will get there.
>> A strategy is “how” you plan to achieve the goal. It is a long-term plan of action designed to tell you how you’re going to get there and the overall direction you are going to take.
>>> A critical success factor is an element that is vital to achieve the strategy. It is always a measurable amount set over a defined period of time.
>>>> A tactic is a short-term action taken to achieve a critical success factor. Tactics are what you do, and for every critical success factor, there are a number of tactics.
>>>>> A Key Performance Indicator is a calculated metric showing progress of an established tactic.
It is most effective to measure events represented as KPIs. If we are able to achieve the KPIs, each successive stage will also likely be attained and ultimately we will meet our stated goal.
An example may be as follows:
Goal: Make our new patio furniture set a category leader in sales revenue by year-end.
Strategy: Drive customers to store and connect with them in store to increase sales.
Critical success factor: Increase store traffic by 20% in next 12 months.
1. Tactic: Offer location based mobile apps to drive clients to stores.
1.1. KPI: Percentage increase in mobile app downloads, month over month.
2. Tactic: Greet customers as they enter store.
2.1. KPI: Percentage increase in customer greetings per store, month over month.
2.2. KPI: Ratio of customers greeted to total customers, week over week.
3. Tactic: Offer discount coupons to be printed from web site
3.1. KPI: Percentage increase in traffic from coupon, week over week.
KPIs are the building blocks of all activities and are the easiest to measure. Ideally, they should be stated as calculated metrics, such as ratios, averages, percentages or rates, and should be compared over time. That way we can see how our activities are changing and what effect that has on our overall goals.