Many businesses spend weeks or months creating their strategic plans. Unfortunately, few actually measure their performance to ensure they are on track. Measurement is integral to the success of your business because as Peter Drucker famously summarized: "If you can measure it, you can manage it."

Measuring enables you to assess your progress and make necessary adjustments along the way to ensure you reach the goals you have spent so much time defining.

In order to measure, your business needs to start by defining an effective set of Key Performance Indicators (KPIs).

What are KPIs?

Key performance indicators (KPIs) as defined by the business dictionary are "key business statistics ... which measure a firm's performance in critical areas. KPIs show the progress (or lack of it) toward realizing the firm's objectives or strategic plans".

What makes an effective KPI?

First, KPIs should be strategically relevant. What you need to measure is directly related to your company's strategic goals, and provides clear insight into what drives your success. Quality is more important than quantity - a few strategically-relevant metrics measured well will provide significantly greater value than a long list of metrics that do little to show you how your business is doing.

To determine the metrics that are relevant to your strategic goal, define the specific behaviors needed to achieve the goal. For example, if you wish to increase sales by 10%, key behaviors might include identifying more leads, converting more leads into sales, and increasing the dollar amount per sale. Measure these.

Second, KPIs should be practical to measure. The most strategically-defined KPI is still only as useful as the data that is collected and acted upon. A key component of this is to gain buy-in on both the KPIs themselves, and the process for tracking and monitoring them, not just from your executives but from those individuals who drive the collection of information and implement the activities needed to reach the company's goals. The sales KPIs in the example above are worthless if your sales team does not track them consistently. If your team understands and believes in the value of the information, they are more likely to put in the effort needed to collect it. Additionally, the front line may be able to provide insight into more relevant KPIs, or more efficient ways to track them. I'll explore the monitoring process in more detail in the next post.

Finally, KPIs should include a combination of lagging and leading indicators. Lagging indicators, such as number of sales closed in the previous month, show where you stand. Leading indicators, such as number of qualified leads in the sales pipeline, show where you are headed. A combination of the two allows you to understand your current situation, and course-correct in the present to influence future success.

Each business is different and requires KPIs that relate to its specific goals. A great resource to find appropriate KPIs is the KPI Library. The library includes KPIs submitted by other business users, explains what they are used for and how each one is calculated.