The success of companies largely depends on key performance indicators (KPIs). Companies use a slew of indicators to assess their performance and take the appropriate decisions to improve performance and operate more effectively.
Dr. W. Edwards Deming, a famous statistician, created an approach to improve businesses known as the Deming Cycle, and business leaders have used this in almost every aspect of business since it became popular.
The Deming Cycle is comprised of four parts:
First: Plan
This is where we establish benchmark outcomes and develop the strategy for the proposed change.
Second: Do
This is where one implements the strategy. When an investors did this, they would often segment out part of the process to test our ideas.
It could be to use a small subset or A/B test the idea.
Third: Study
Outcomes are compared to benchmark data following the standard process. Was there an improvement? Was there a regression? Comparing the outcomes from the old process with the results from the new process told us whether it made us better.
Fourth: Act
One decides if this new process is better or worse than the old standard. If it is better, it becomes the new standard process that everyone uses. If it is worse, a business reverts to the old process we had been using.
Deming's four-step process allows us to constantly improve all aspects of the business. This methodology will be applied over and over again. Suggestions can be taken from the team to be tested out.
This is a great strategy to keep improving instead of growing stagnant in a business’ processes. But the key is that one has to have benchmark data to know where they stand.
The Deming Cycle of Plan, Do, Study, Act, works when you are focused on the metrics in your business.
Without a metric-focused approach, you will try out different ideas without any real sense of whether they improved things. We need to know that if we continue to follow our process, we will get a certain range of results. Then, when we apply a new idea, we measure the outcome to see if it is better or worse.
What to measure first?
Every business is different. Every department and task requires a unique approach. But almost everything can be measured.
We can measure aspects such as sales calls volume, revenue, time doing a task, cost per unit, and throughput.
When I set up KPIs for a business, I always want to think about the value for the business. What does the business value? What is the value proposition? Those became the starting point.
If the differentiator for the business was quality and efficiency, I would measure the accuracy of each department and how quick they were to complete a task.
Once you establish some key aspects that you want to measure, a decision is taken about how you are going to measure those things. With today’s technology, it is a safe bet that the tools you are using already have built-in dashboards.
Most ERP and CRM systems give you a great deal of reporting options out-of-the-box.
It is important them to decide what is important for your business and then find the report that gives you that information. Then, track those areas over time.
Some business systems are lacking in their ability to provide quality metrics.
Sometimes the ERP can't report what we need. Or there are artifacts in the data.
Measurement leads to improvement
Once you start measuring something, that area begins to improve. Even your focus will shift. You will see the artifacts of your decisions in black and white. Instead of assuming every decision that you made was right, you will see how it impacts the performance of the business, good or bad.
Overall, it is important to use metrics to help improve the business without letting them get in the way of progress.
So, if a business relies on gut decisions and observations alone, realize the power of metrics. Understand that the time spent developing the right KPIs will accelerate your business growth and give you the systematic approach necessary to keep growing and improving.
Source: entrepreneur
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