One of my former MBA lecturers once told us that he can quickly tell how well a company is operating just by looking at a few ratios or KPIs in an Annual Report without speaking to any employees or stepping into the company. Intriguing, isn't it?
1. What are KPIs?
They refer to a set of quantifiable measurements to determine a company's performance (Twin, 2021).
We are all measured by KPIs. Our countries and governments, companies, employees and senior management, students and sports athletes too.
Without KPIs, we wouldn't know what we are striving towards, whether we are improving or lagging or whether the actions we are taking are bringing us nearer or further away from the target.
2. Why do KPIs matter? So that we:
Know where to look - to narrow down the problem areas.
Track patterns and trends - instead of an amount/percentage on a particular day which is less meaningful.
Know what to solve - with the guidance of a defined target.
3. The Analogy: Running vs Business
I like running. I didn't use to like it because I had no idea if I was making progress or hitting my goals.
I did not know over some time, if my average pace was improving, running further each month, if my cadence (steps per minute) was optimal or if my heart rate was in an easy, aerobic or threshold zone.
Sure, I can track them, write them down and then type them into Excel and then plotting charts. It's just too much hassle.
With technology, all of the above are captured through my watch and presented to me in a pretty functional dashboard on my mobile app. I can then monitor and make adjustments to my training to be better.
So, in a business context, they are the same. Without a proper system, it's painful to prepare the KPIs and takes up manpower and time.
All of which could have been spent analysing and making decisions instead.
4. How can Software Applications help to set and track KPIs? In 6 steps:
Great, now I have the data and KPIs. They would be even more useful if presented timely so someone can take actions to "stay ahead". Who is the someone? Again, they have to be presented to the right person(s) so that they make sense right? Finally, wouldn't it be great if the system does the heavy lifting by monitoring certain thresholds for me and alert me if they were breached?
5. Cloud ERP
Next-Generation Cloud ERP software like NetSuite has role-based dashboards with financial and operational KPIs that fulfill all of the above criteria. For example:
- If I am a CFO or Financial Controller, I will be interested to monitor Board Metrics like Equity Ratio, Gross Profit %, Operating Cash Flow and Return on Assets for example.
- If I am the Head of Sales, I will be looking at Sales, New Leads, New Business and Pipelines.
- If I am the Head of Inventory, I want to know the Monthly Inventory Trends, Orders, Inventory, Open POs and the Value of Open POs.
In short, different roles in a company will be looking at different KPIs. To constantly calculate, track and update this would be daunting if done manually. It's simply too cumbersome and time-consuming.
Why allocate precious resources to do this when there are solutions in the market that deliver this natively and present them from a single source of truth to ensure they are accurate?
To know more, download this free Business Guide to understand the 20 KPIs Every Growing Business Should Track.