[I wrote this article for the “Retail Mag”, November 2010 edition]
Many people in retail (or in business full stop!) turn off when they hear the word KPI… Not another one… What does KPI stand for again, I can never remember? Key Performance Indicator. I am not sure when the term KPIs actually came into the gambit of business speak but there is no escaping it nowadays!
Looking at trusty Wikipedia, a KPI is defined as : “a measure of performance. Such measures are commonly used to help an organisation define and evaluate how successful it is, typically in terms of making progress towards its long-term organizational goals”.
Some areas of business are easier to have KPIs for than other parts… The less subjective the better… In retail we are lucky as we have so many hard numbers that we can measure. I would describe it as “KPI Heaven”! For a KPI to be effective it must be accurate ie. truly measureable. It also needs to have a time frame that it is measured for and against, preferably benchmarked against something and also with a KPI target in mind.
Each business, department and person will have various KPIs that should be in place… Experience suggests that you do not want to have too many headline KPIs as in the big, really important ones. Under each headline KPI there could be several that contribute to the headline one, but make sure that each person or department or store or whatever does not have too many KPIs. I would definitely suggest each company having lots and lots of KPIs but every single person should only have a few… So the many people in your business with a few KPIs feed into giving lots of KPIs for the entire business, which can be summarised in several headline KPIs.
WHY HAVE KPIS?
- You need more indications of performance in your business than yesterday’s information (the last set of monthly accounts you have). Who wants to drive their car forwards by looking only in the rear vision mirror.
- You need extra detailed information as to why your business is tracking the way it is. There is so much information in your business, you just need to look harder sometimes if you are not sure of the answer. KPIs and the information they shed, can be a light-bulb moment.
- It is the best way to hold your team accountable for their performance. Every person in your team needs to have personal KPIs. When you have regular catch ups with them, you will be reviewing their progress to achieving their agreed KPIs.
- It is a great way to communicate to the entire company how the business is going. There is often big question marks about how transparent a business should be, so do you tell your team or not? Reality is (subject to commercial confidentiality) the more you bring the retail team into the loop the better as there is no sense in most of your staff living in a false sense of reality if your business is not going that well… If the business is going great, then proclaim your business (and kpi) success to the ceiling, good news is fantastic!
- When you have meetings it is an effective way to share information on the state of the business and also for everyone to feel jointly accountable to the whole team. The more accountability the better your business will perform.
- They add motivation to your team. As we all know per every study ever done, if you have a goal you will perform at a higher level than without one… Interesting though that with new years resolutions less than 20% of people actually achieve them. The main reason is that after 3 weeks you have forgotten what your new years resolution actually was in the first place! It was never written down on the 1st of January. KPIs will potentially add motivation to your team if you write them down… They cannot sit in the bottom drawer though gathering dust. They will only add motivation if they are referred to constantly… Better to over-kill on how often you refer to your main KPIs than never refer to them!
- Having run the winner of the “best workplace in the country” in my previous corporate life at Barkers, I know the importance of KPIs from a recognition perspective. Whether times are hard or fantastic, being able to measure someone in your team against the agreed KPIs or your targeted KPIs is a great source of “good news”. Good news means you can recognize good performance… This is free. A pat on the back is hard to beat in building motivation and staff satisfaction. No matter what you are experiencing in your business, there is always some good news… You just have to look harder sometimes. KPIs will give you the gateway to an effective recognition system in your business.
- If you run them properly, they will help you run a better business with increased profitability… Each business will have a few main KPIs that should be nominated in your business plan. It is important that beyond your business plan KPI aims that you have not just made up what your targeted KPI levels are, but that you have gone through thoroughly and have a plan as to how you will achieve your KPI goals. A KPI aim with nothing behind it is worthless and will often de-motivate, if you remember to look at it regularly.
Overall KPIs will add value to your business and help you to make better decisions no matter what you are facing…
SO WHAT ARE THE REALLY IMPORTANT KPIS FOR A RETAILER?
As I said, retail is KPI heaven. The main parts of a retail business are :
- Sales / Margin
- Customers / Marketing / E-commerce
- Stock / Product / Distribution
- Team
- Costs / Profitability
Obviously all of those parts feed into how successful you are overall and your profitability. How detailed you get with your KPIs depends on the challenges facing your business, who is in your team and what they do…
There are obvious KPIs for the main 5 parts of a retailer, but there are many that are not so obvious that will add serious value to your business… Most retailers I have come across over the years (many) are reporting sub-standard KPIs and are missing a great opportunity to add serious value to their business, if only they could be super creative and truly analyse their business and the many determinants that go into it, at all levels of their business… The flow on from effective KPI knowledge is massive!
WHERE TO NOW?
Once you have good Key Performance Indicators defined, ones that reflect your companies goals, that you can measure, what do you do with them? You use Key Performance Indicators as a performance management tool, but also as a carrot. KPIs give everyone in the company a clear picture of what is important, of what they need to make happen. You use that to manage performance. You make sure that everything the people in your business do is focused on meeting or exceeding those Key Performance Indicators. Post the KPIs everywhere: in the lunch room or back room, on the walls of every conference room, on the company intranet, or as your screen saver, everywhere… Show what the target for each KPI is and show the progress toward that target for each of them. People will be motivated to reach those KPI targets.
As part of my business (called “Business Changing”), I have established a suite of KPIs that retailers can follow and I will work on establishing what good KPI targets are for your business. I will also work on how you should best report them and the related areas that they affect (eg. like bonuses, staff appraisals and many, many more areas).
SUMMARY
To have an effective business plan and to know where you are going, you need to have good KPIs in place – at all levels of your business. There should be no escaping KPIs, regardless of what this or that person does in your business. If you do not measure, you will never achieve all that you are capable of. Your team will love you for having KPIs. The only time they do not is when they are not performing and thus are not achieving the KPIs that you have set and agreed. Speaking of which, make sure KPIs set are achievable, not impossible, not too easy, but just right to help drive a motivated performance in your team.
You must be careful though that your KPIs put in place are good KPIs, not bad ones! Good ones will add to your overall knowledge of how your business is performing and will drive greater levels of achievement. Bad KPIs are two fold, one is they actually negatively impact on staff motivation (eg. you set the benchmark at the impossible level!) or you fail to set a level that must be achieved eg. there is no set aim in a given KPI, you just merrily meander along knowing how you are going but there is no consequence or end goal to aspire too.
Well I think that you will all be advocates for KPIs by now… Key Performance Indicators! They rule the retail world. They rule the business world! They will give you insights into how you can make your business improve, so much better than anything else at your disposal… KPIs do not lie. It is totally possible that every single person and area in your retail business (from wo to go) can have effective KPIs set up that are both “business changing” (watch your sales and profit fly, with the right focus!) and are also employee satisfaction changing, so much for the better…
If you need a hand on KPIs (or business coaching, business advice or business planning), sing out, I’d love to help you and am willing to share my knowledge on retail KPIs, the specific ones that you should be reporting in your business! There are so many that I could share with you! Then watch your performance improve!
DO YOU WANT TO LEARN MORE ABOUT RETAIL KPIS?
IN CONJUNCTION WITH THE RETAIL ASSOCIATION, ZAC DE SILVA WILL BE DOING A WEBINAR ON “BUSINESS CHANGING RETAIL KPIS” ON NOVEMBER 17 AT 9AM TO 11AM. FOR DETAILS LOOK AT WWW.BUSINESSCHANGING.COM/WEBINARS/
YOU CAN DO THIS WEBINAR FROM ANYWHERE THAT YOU HAVE AN INTERNET CONNECTION AND IT WILL FOCUS ON THE BEST PRACTICE KPIS COVERING THE 5 MAIN PARTS OF RETAIL NOTED ABOVE IN THE KPIS ARTICLE. $140 FOR RETAIL ASSOCIATION MEMBERS IF YOU REGISTER BY NOVEMBER 10 ($230 FOR NON MEMBERS). FYI THIS IS NZ DOLLARS, SO IT WOULD BE IN USD, APPROX. USD $105. WEBINARS ARE A VERY CONVENIENT WAY TO LEARN AND TO ADD VALUE TO YOUR BUSINESS AND KNOWLEDGE.
WEBINAR HIGHLIGHTS WILL INCLUDE :
- LEARN HOW TO GET BUY IN TO KPIS FROM YOUR ENTIRE TEAM.
- FIND NEW RETAIL KPIS THAT YOU MAY NOT HAVE CONSIDERED THAT COULD ADD SERIOUS VALUE TO YOUR BUSINESS.
- DISCOVER SOME EXPECTED BENCHMARKS YOU COULD COMPARE YOURSELF AGAINST ON SOME KPIS.
- GET YOUR QUESTIONS ON KPIS ANSWERED.
CONTACT ZAC@BUSINESSCHANGING.COM WITH ANY QUESTIONS.
Lot of pragmatic common sense Zac. Nice to see it embraced as a performance tool and , by implication, that there are other KPI’s than financial reporting.
I’d just add that KPI’s are just that – indicators . They are a good sign of what is happening in the business . However , they do not tell you the “why ” … and I’ve always found this to be a critical adjunct to the suite of management tools. Creatively addressing both the positive indicators ( can we improve still further by …. ) and the negative ( how do we reduce/eliminate the ….. ) and then tracking the results through a new set of KPI’s makes it a holistic exercise rather than one dominated by accountants ( sorry )
As always , it is the execution of the strategy that makes or breaks companies . Ideas are easy ; strategic plans a doddle. Actually carrying out the plan in the timeframe allowed defeats most companies and leads to disparagement of KPI’s because too much has been programmed or many people haven’t bought in.
Best wishes on targetting these areas … and especially the very hard area of retail
Thanks for that Tony… Yes it is all about “execution” isn’t it. I have just written another article for a magazine (out in about a month or so) on “strategic review of your business” and I note that “execution” is the ultimate key to success. Ideas are great but must be able to implement them! I have a lot of service industry / sector clients along with a bit of retail. I really want to be able to help any sector or industry… I will include your feedback in an upcoming webinar I am running on KPIs next week, so great!