Businesses are collecting more data than ever before and deploying resources to analyze that data to make it actionable. Unfortunately, all too often businesses are not marshaling their resources to hit goals. This could be because they lack understanding of key performance indicators (KPIs), and they sometimes use the words metrics and KPIs interchangeably, when, in fact, they are not the same.
It helps to have proper definitions. Metrics are measurements used to quantify activity. They do not take into account external factors and merely serve as a snapshot of the here and now. While they are objective statements, they lack context. KPIs are used to track specific business goals. They objectively mark progress. While a lot of things can be measured, fewer things are considered key. It is the key things to which you need to pay attention.
Let’s look at an example: The number of suppliers you have is a simple metric. At any time, you can get an accurate count of the number of suppliers with which you do business. But what does that tell you? There is no good or bad number of suppliers. However, if you tie the number of suppliers to a specific goal, it becomes meaningful.
If you consolidate the number of suppliers, you build leverage with the remaining ones, which can be used to negotiate better pricing and terms. On the other hand, expanding the number of suppliers of critical suppliers can insulate you from supply chain disruptions.
Monitoring metrics around the number of suppliers does not tell you anything about achieving cost reduction or supply chain risk protection. When it comes to deciding what to measure, make sure to choose things that speak to progress toward the goals you have set for your organization.
Here’s a simple way to help you determine which things to measure. Start by thinking of your high-level goals for the next 12 months. Then develop a bulleted list of the metrics you already collect and review. Next ask yourself the following questions:
- How many of the metrics you are tracking actually measure progress?
- How many are vanity measurements that say very little, but look good in a report?
- How many end up being completely unrelated to your goals?
Stop following the metrics that don’t measure progress toward your goals. Focus on those that give you insight on whether you are moving toward your goals. With that information, you can either move forward confidently, or discover that you need to make adjustments sooner rather than later.
