Every day, companies generate a diverse range of data, but not all of it is relevant to management processes. This text, authored by Mark Henricks, will show that finding the right data can help reduce complexity in business management and decision-making.
Imagine the day-to-day operations of your company. You might conclude that an endless stream of data keeps your business running, from inventory items to accounts receivable and the number of on-time deliveries. Often, the challenge faced by company managers is how to make proper use of this data.
Given this challenge, managers must pay attention to key performance indicators, or KPIs, which will be determined according to the characteristics of each company. Data that is important for one company may not be for another.
Ray Rebello, director of product marketing at Acumatica (a Bellevue-based cloud planning software maker), exemplifies this when he states that “if inventory isn’t a problem for your company, you won’t need a KPI for that; you might need a KPI on the number of products returned or perhaps on the time your employees spend on the phone.” Circumstances also suggest different indicators. KPIs for an annual board presentation will likely be different from those used in a weekly sales meeting.
Key data indicators
Among the key indicators widely used are accounts receivable, accounts payable, and cash balances.
For marketing-oriented organizations, KPIs that deserve close attention might include the number of calls salespeople are making and the quotes they are sending.
Companies with production lines can use KPIs that show the operation of the main equipment and where the bottlenecks in the production line are, even in real time.
Indicators that can show what long-term profitability will be like are the cost of customer acquisition and customer retention.
Limiting KPIs to reduce business complexity
Even a small company can generate a large amount of data. with Accounting and resource planning tools provide dashboards that can be populated with numerous KPIs. Conversely, managers have limited time and attention spans. Therefore, it's a good idea to consider limiting the number of indicators a manager closely monitors.
Initially, managers should assess their own ability to handle different indicators. They can start with up to a dozen and then adjust the number until they feel comfortable.
Careful attention to indicators
The data reflects reality, but it is not reality itself. That's why experts and business managers urge caution in drawing conclusions based solely on data. This can become a trap: people get so caught up in numbers that they forget about the customers.
It's also important to keep in mind that today's indicators may be less important tomorrow. Managers should periodically reassess whether they are observing the correct data points. If a particular metric is not generating the desired results or behaviors, it's important to change it as quickly as possible.
Finally, even though using KPIs can reduce business complexity, it's important to decide which ones to follow, how often to check them, and what to do with the information generated. These decisions can be some of the most important a manager makes. How you apply the information can dictate your organization's performance.
