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The Key to Growing Your Company? Knowing Your Company
January 16, 2020
"Narrowing your focus is key. While all KPI's are valuable, we've learned that it's crucial to carefully select the metrics that our managers and team members can both understand and influence in their day-to-day work."
Taking a Closer Look at Your Operation
How, specifically, does “who you are” affect KPI selection? Well, for example, if your company has established itself as the low cost provider in your industry, you might find it necessary to aim for a high utilization rate of 95 or 100 percent in order to achieve your financial goals. If, on the other hand, you’re known for your experience and the quality of your work, a much lower utilization rate goal might be more appropriate and fully capable of producing the results you’re looking for.
In addition to those kinds of external perception drivers, we’ve found at our company that there are internal factors to consider as well. For example, if you’ve been able to attract and retain top talent because you emphasize a more relaxed pace and better work/life balance, setting a high utilization rate target won’t go over well with your staff and may cost you in the long run. Similarly, if you put too much emphasis on ensuring your people are billable, you might get pushback and negative results.
And while we used utilization rate in these examples, you should perform the same type of analysis on any KPI you’re considering. For instance, one company might pursue revenue growth of 30 percent while another could find that hitting a significantly lower target still delivers the kind of financial results that leadership is happy with.
Narrowing the Focus
So, narrowing your focus is key. While all KPIs are valuable, we’ve learned through experience at our own software development company that it’s crucial to carefully select the metrics that our managers and team members can both understand and influence in their day-to-day work. For example, many companies focus on improving profitability, but we’ve realized over time that while that number is important, there are too many factors that feed into it and consequently we weren’t going to have much success in increasing it directly. Instead, we found that realized rate (total revenue divided by the number hours of work performed to generate it) was easier for people throughout our company to grasp and that improving it was a better, more achievable goal for us.
Input and Iteration in KPI Selection
Two other considerations we keep in mind when selecting KPIs are input and iteration. We believe that leadership shouldn’t select KPIs in isolation. Bringing managers into the conversation helps ensure that the metrics you choose to focus on make sense to the people doing the work. We’ve also learned that you shouldn’t carve your KPIs in stone. A better approach is to:
- Choose which metrics to share companywide, and have your teams focus on them for a period of time
- Assess whether they’re helping you improve financial performance
- Adjust as necessary
Of course, the goal is to settle on a few key figures, so you don’t want to “repeat” indefinitely and continuously change your focus. But some initial fine-tuning is a good thing and will help get everyone comfortably on the same page.
Using this approach also allows you to observe how improving one KPI affects others. For example, you might set a goal of increasing realized rate but find that doing so causes utilization to fall. Knowing that that’s the case allows you to tweak your strategy if necessary.
Ultimately, you’ll identify the “levers” you and your teams can pull to accelerate your growth. Then, you should make them available in an accessible “dashboard” so all team members can see the progress being made.
And, you don’t want to get complacent. It’s important to assess whether your selected KPIs are still the right ones periodically. Whether that means quarterly, every six months, or annually, the point is to ensure you’re still pulling the right levers.
Finally, we’re always careful to keep client satisfaction and employee satisfaction in mind. Ensuring that those two numbers are trending upward is one of a company’s most important measures of success.
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