What are the top responsibilities of a manager?
- Making sure projects/tasks are delivered on time/within budget
- Improving performance
I think we can all agree with these two points. One tool is particularly powerful to help managers ensure employees are on track with their goals and have room for improvement: Key Performance Indicators, or KPIs.KPIs are metrics that are set by managers to measure the performance of a team or team member. Do you know if your employees are hitting their goals? How far behind or ahead is your team? What metrics can you measure to improve the performance of your team? How hard is it to gather that information today?
KPIs deliver all of these answers in real time. After all, what is measured can be controlled. Below are five KPIs you can use to manage your teams:
You can use KPI benchmarks to measure the performance of your team against the goal you set up. Let’s take a real-life example.
Your sales team of 5 people needs to sell $1,000,000 a month to be on track with the organization’s goals. A benchmark KPI will allow you to measure the percentage of goal completion throughout the month.
In this example, each sales person needs to generate $200,000 in revenue every month. Two weeks after the month began, the KPI of one team members shows that he or she is at 80% of their goal, while another is at 20% at the same moment. You can use this KPI to coach both of them and spend some time helping the second sales person to hit their goal. Maybe this sales person needs to be making more phone calls, sending more emails, more quotes, or maybe they just need help during the closing phase.
Whatever it is, if you measure relevant activity information, you will be able to help them perform better. Managers should take some time defining those KPIs and benchmarks to only measure information that translates into success. Don’t spend time measuring aspects that are not absolutely critical to the success of your teams.
Keep in mind also that some information might be critical to one but not be for another. It is relevant to track how many hours a technician spends on-site on average, because it is billable information. It is less important to know how many hours a sales person works every day, especially if they hit their quotas.
At ABIS, we are using KPIs as a management tool daily. Our KPIs are evolutive and change colors based on performance and percentage of goal completion. It is an easy tool to use for our managers and allows everyone to perform at their peak performance.
2. Decision making
Good data is essential to make the right decisions. You don't decide to move into an intersection at a stoplight based on if the light was green 10 minutes ago. You need to know if the light is green right now, when you're looking at it. KPIs work the same way. They give you a picture of the real-time performance of your company. Not 3 months ago or a year ago as most reports do.
Imagine that you have two sales teams at your disposal. You decide to measure Sales team A based on the sales dollars they generate each month. You will manage Sales team B based on three KPIs:
- How many invoices they send out each month
- What is the average dollar amount of these invoices
- What is their closing rate
In month 1, Sales team A sells $100,000, and in month 2, they sell $120,000.
In month 1, Sales team B sends out 20 invoices of $10,000 in average with a 50% closing rate. They sell 20 x 10,000 x 50% = $100,000. In month 2, they send 20 invoices of $12,000 in average with a 50% closing rate. They sell $120,000.
If you were a manager of these teams, which one would be the easiest to manage? Team A or B?
Let me point you in one direction.
- Team A increased their revenue by $20,000 but can you tell me how? Why did the revenue increase? What is hard work, more activities, bigger customers, plain and simple luck?
- Team B increase the average dollar amount of their quotes and it resulted in an increase of revenue. Even though they did not send more quotes or improved their closing rate, they found a method to improve their results.
As a manager, you can clearly identify and repeat the success of team B. To improve your performance, you need to be able to trace a direct line for the reason of your success; and KPIs are that line. With the right metrics in place, you know in real time how your teams are performing and what aspects are the cause of their performance.
KPIs also gives you the ability to track the results of any decisions made. If your next strategic move is to double the number of phone calls made in a week by your sales team, you need to be able to track this new effort… and their impact on your revenues. KPIs are absolutely essential to making the right decision.
3. Employee engagement
A study conducted by Gallup revealed that only 33% of U.S. employees are fully engaged at work. If you have 100 employees, that means that you have 132,000 hours every year that are worked by unengaged employees. That's 132,000 hours where your customers don't receive the best attention, and your goals are not worked properly. Ouch.
There are many ways to re-engage 100% of your employees. You can encourage problem solving, engage in one-on-one conversation with them, or just by... talking less. Our favorite way is to connect the employees with the larger organizational goals and strategies; and KPIs are an effective way of doing this.
I will share the example of ABIS to illustrate this point. We are a consulting company that develops our own ERP software to help companies become more profitable. Over the years, we learned the best practices of hundreds upon hundreds of CEOs and organizations and put them in our software.
A team of programmers works every day on developing the desktop, cloud, and mobile applications of the software. Their development process, as well as their goals, are all detailed into various KPIs. Let’s say that for example, to complete one module, they need to complete 20 screens. Every time they finish a screen, they mark it as “completed”. The management team built a KPI that reflects their progress towards the end goal: completing the module. If the programmer has built 16 out of 20 screens, then it means that 80% of their goal is completed.
This helps engage the developers because they can see right away how their performance impact the growth of the organization. Because KPIs are created based on an organization's goals, they help team members connect to the organization and increase their engagement.
At ABIS, we took this practice one step further, as we show all relevant KPIs in the meeting room we meet in every morning. Once a week, employees are encouraged to explain their KPIs and how they participate to the success of the company. This creates a positive and interactive culture that has been driving employee engagement at ABIS.
4. Identify top performers
Every team is a mix of top and lower performers; managers need to be able to identify top performers to utilize them strategically within the team.KPIs are a tool that can be used to identify them. Team members who consistently achieve or exceed their KPIs are considered as top performers; more attention and resources can then be allocated to these individuals due to their importance to the success of the team.
In our software, we put in place an array of colors to represent team members performance and their contribution to the success of a company.
- RED: Poor performance. This member’s results are way below expectation, he is only completing 50% or less of their goal.
- YELLOW: Below performance. This member is close to reach its goals but is slightly below expected performance at the moment.
- GREEN: On-track. This member is meeting the goals assigned to her or him.
- PURPLE: Royalty. This member is performing above expectations, completing more than 20% of the goals assigned to her or him.
5. Objective evaluations and effective coaching
KPIs are a means of objectively evaluating the performance of members of a team. Numbers don’t lie. Numbers don’t have emotions. If a team member is at 120% of their goals then they need to be recognized for their contribution to the company.
KPIs also allow for well-balanced competition and auto-management from the employees. The CEO of ABIS, Russell Schulte, took the decision to display the most important KPIs on a screen. Those KPIs are available at all times and displayed in front of the whole company every morning. Russell believes this is self-motivating because everyone wants to be seen in a good light in front of their peers “nobody wants to be in red in front of everyone, believe me” he often says. Each member's performance can be compared with other members of the team; in addition, KPIs can be used to track the performance of each team member over time.
Furthermore, managers can use KPIs to determine the weaknesses of the team members so that targeted coaching and corrective strategies can be implemented. In the sales department for example, one team member can be crushing numbers in terms of new prospects added to the pipeline but have a lower prospect to customer conversion ratio. This can indicate the manager that either the quality of the prospects added to the pipeline were not filtered enough, or that the team member needs coaching to increase its closing rate.
Using ERP software to establish and track KPIs
KPIs vary among organizations, teams and even strategies put in place from one quarter to another. Finding the right KPIs to fully measure the performance can therefore become a complex task. You also need to have the right tool to extract the correct data to build those Key Performance Indicators. Enterprise Resource Planning (ERP) software can simplify the process of creating and monitoring KPIs, making them easier to manage. Using ERP software, KPIs can be created to measure the true performance of every aspect of your organization.
They are a true reflection of the health of your company as they reveal how you and your team are performing in real-time, as well as how your performance trend is looking over one month, three month, or a year. This allows you to make the most informed decision that will take your business on a path to success.
At ABIS, we developed an ERP software that can collect data from your entire organization, allowing you to create any type of Key Performance Indicator. If you would like to know what your KPIs would look like within ABIS' ERP platform, request a demo today!