4 business metrics every consultant needs to understand / The Bernard Marr column
Business metrics matter. They measure how successful a company is, and how well it is performing. This is why metrics are also important for management consultants. Any business consulting engagement should be measurable and hopefully impact some of the key business metrics of an organisation. The big question is, which ones are the most important ones?
We seem to live in a world saturated with data, metrics and performance reports. Our corporate rivers are overflowing with them, drenching everything in numbers and targets, drowning us in data, while leaving us gasping for insights.
I have helped hundreds of companies, from major international blue chips to small family-owned business, develop KPIs. KPIs stands for Key Performance Indicators and most companies and government organisations are either drowning in them and/or using them so badly that they are leading to un-intended behaviours.
What I have learned over the years working with companies is that there are four KPIs that are absolutely crucial for any business, or indeed government organisation.
The four KPIs that come out of every workshop
These four are the same KPIs that come out of every workshop I run with executives from all over the world, across all different types of industries. To get to them I create a simple exercise and say to them: “You are running this business and want to understand how well the business is performing. You now have to select KPIs for the business and those metrics are the only management information you can use to judge whether the business is doing well or not. The challenge is that you have to agree on only four, and together they should give you a complete picture.”
This, by the way, is a great exercise you can do in your own company, with your own team, or your own clients and is one that sits in stark contrast to the way KPIs are usually developed: Brainstorming what we could possibly measure and ending up in a position where we measure everything that walks and moves and nothing that matters!
Anyway, the four KPIs that always come out of these workshops are:
- Financial Performance Index
- Customer Satisfaction
- Internal Process Quality
- Employee Satisfaction
Here are the reasons why these KPIs are picked time and time again:
Financial Performance Index: Money matters to any organisation. A publicly listed business needs to ensure it satisfies shareholders by delivering turnover growth and healthy profits, not-for-profits or government bodies have to demonstrate they deliver value for money to the tax payer. Small businesses have to watch their cash flow and even internal functions have to ensure they control costs and generate efficiency savings. The key metrics to use for a financial performance index are sales growth, net profit margin and cash flow.
Without customers, companies wouldn’t exist. Any organisation has customers it has to satisfy. For example: Big commercial companies have customers that buy their products or services, government organisations have customers they serve, and an internal function has customers (e.g. their co-workers in other departments) to whom they deliver services. Any business, government or not-for-profit organisation has to ensure it delivers to its customers. My favourite ways to measure customer satisfaction are e.g. the Net Promoter Score, customer engagement and customer retention.
Internal Process Quality
Companies need to make sure their services and products are to the expected standards and that they optimise the way these products or services are delivered. It doesn’t matter whether you are a multi-billion dollar corporation, a not-for-profit body or a shared services function, all of them have to ensure their processes are as efficient and effective as possible and deliver the quality their customers expect. Here I would recommend metrics such as capacity utilisation, project performance, order fulfilment or product / service quality.
Even though I have written about elimination of human jobs through the use of artificial intelligence and big data robots, we can safely say that employees are still the most important ingredients in any business. We all know that companies don’t do well if their employees are not happy and this again applies to all enterprises. The people in any organisation are the ultimate drivers of success or failure. Ways you can measure employee satisfaction include staff advocacy scores, employee engagement and absenteeism.
So here we have it. The four KPIs every consultant needs to understand. So if you are seeking relevant and meaningful KPIs, simply start with those four and develop meaningful ways to measure and monitor them.
If you would like a little more insight on how to measure some of these KPIs and how to develop a meaningful performance management framework check out www.ap-institute.com/ (external link) where you can find a free KPI library as well as many relevant articles and case studies.
As always, please share your views and let me know what your thoughts are in the comments below.
For more insight from Bernard on big data, metrics and performance you can find his previous columns here: The Bernard Marr column archive