There’s one reason why companies, particularly those in the manufacturing sector like print, have key performance indicators (KPIs). It comes down to the management mantra: “If you can’t measure it, you can’t manage it.”
KPIs create a series of repeatable steps to produce a particular outcome. The KPI is a starting point measured internally to make sure that you continuously improve what you do. Companies have to measure performance to enable corrective action to be taken if the process fails to meet its designated outcome. In an industry as volatile as printing, it is important to have a stable set of measurement tools.
KPIs cover many areas and there are different measures for different roles. Typical KPIs might include cost of sales, the mix of products sold, sales against target, sales conversion rates, staff absenteeism, delivery on time, employee turnover, number of new ideas generated, how many ideas become profitable, rate of conversion of web traffic, customer acquisition cost or inventory turnover, lost time due to injuries, error rate and the number of customer complaints.
So how does a printing company set up KPIs? The first thing to understand is exactly what’s being measured. What is the core objective? It is important here not to confuse the KPI with goals. Unfortunately, there are many companies that make that mistake. The two are not the same.
For example, a printer might have the objective of generating $5 million of sales for a particular year. That’s a goal. The KPIs for that would be around the sale process, not the $5 million figure. They might include how many new customers, how many visits from prospective customers ended up in presentations and how many presentations ended up in sales.
KPIs are used, reviewed and read by many people in an organisation, so the language of the KPI needs to be understood by everyone. This is a lot harder than it sounds. Not everyone can understand exactly what “revenue” means. Or for that matter, “customer satisfaction” or “employee satisfaction”. Everyone affected by the KPI has to understand the vocabulary and exactly what it means.
Some companies have KPIs with stretch goals. That’s all well and good, but they have to realistic. If the company needs three extra people and another million dollars of machinery to reach those KPIs, it might well become economically unviable. If the KPI feels too far out of reach or ridiculous, people are not going to try and achieve it.
KPIs need to be easily measured. But some are easier to measure than others. “Number of print orders per day” is straightforward. “Number of print orders that meet minimum quality specifications” might be more difficult to measure. When that happens, companies have two choices. They can either focus on something that can be measured, or they can settle for an alternative or proxy.
It is important that all of the KPIs align with company strategy. Some companies make the mistake of ignoring this. As a result, there are sales teams, for example, that have KPIs around whether they completed reports on time – something that will not sell anything.
KPIs also need to be reviewed. Businesses after all change, as does what they need to do to succeed. As a result, some KPIs can get old, stale and need renewal.
KPIs are critical for business success, but they only work when they are appropriately designed.
Leon Gettler is a senior business journalist who writes for a range of leading newspapers and journals
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