Guide

Key Performance Indicators and the Reporting Tools for Success

Considering BI?

Today’s most successful organizations have built their operations around data-driven decision making.

The reason is clear. Analytics deliver insights into customer behavior. And today's enterprises want analytics for everything—including IT.

So you need to use key performance indicators to make business improvements.

Now, measuring performance is not a new idea. What has changed is that everyone wants to start measuring. 

Business users now demand more information—and they want it quicker than ever before. So programmers and developers responsible for selecting business intelligence (BI) tools and delivering performance metrics have had to give up some control.

The rise of self-service BI has created new challenges and caused some fears that technology professionals are being asked to:

  1. Think in terms of the business and its information needs
  2. Open the door to vulnerabilities, such as the risk of lost, modified, or stolen data 

Is it even possible to find a balance between empowering users with BI reporting and keeping data secure?

Creating a Culture for KPIs

Gartner has been charting the rise of analytics in BI for the past decade. The Gartner 2017 Magic Quadrant report dubs analytics "mainstream." And self-service analytics has made its way into three of the top five must-have capabilities for BI platforms. 

Everyone is interested in making effective use of data. But in order to make use of KPI data, you need the right processes and the right technology to get it. Aligning technology decisions with business goals can help. But organizations get the most benefit out of creating a corporate culture that values action-centric data.

This means that your technical team needs to take part in the big-picture business conversations so they are better positioned to choose the tools that best match needs. You can do this by making it easier for non-IT stakeholders to track KPIs.

Reporting Tools Should Aid Decision-Making

Forrester analyst Joseph Stanhope recommends several principles that can serve as a framework for raising a company’s overall digital intelligence. Ask yourself the following question.

Are your KPIs actionable? What's the business outcome? 

KPIs in Practice

Take 1-800-Flowers.com.Their IT staff takes the time to discuss what data the company needs.

Then they arm employees with real-time information through their BI tools—but not too much. Users are categorized based on levels of technical expertise. A “super user” can generate his or her own reports. Meanwhile, a “basic user” needs a more accessible, intuitive interface. 

As a result, employees are able to identify increased demand for specific products before an event happens. This led 1-800-Flowers.com to significantly reduced call times during Mother’s Day—their busiest day of the year. 

Here's how. They quickly set up an express checkout service for the popular products. That shaved 2-3 minutes off the average call time on Mother’s Day. And when it comes to handling a rush of incoming calls, every second counts. Service delays result in unsatisfied customers and high abandonment rates.

Because 1-800-Flowers.com took the time to create a culture that promotes data access for business users, they improved customer service and increased customer satisfaction.

This case study proves that you can provide actionable KPIs to boost business—and keep the data behind the KPIs secure.

But there are challenges to using KPIs.

Strike a Balance

The first challenge is finding a balance between too much information and too little. It may be tempting to think more data is always better, but that’s not always true.

Asking yourself a few questions can help determine whether your company is tracking effective KPIs or simply flooding users with too much information.

Do the metrics relate to specific goals?

Can the business units form an actionable response?

Do the measurable data points fit into an overall strategy?

Are the metrics identifying areas of improvement?

KPIs need to be comprehensive enough to portray an accurate picture of a situation, but not so comprehensive that they become overwhelming. Similarly, limiting users to two or three metrics may lead to inefficiencies down the road.

For example...

It’s easy to imagine the challenges that would stem from a marketing department that only tracked total volume of lead interactions. This number may be useful in determining how active the team is, but it wouldn’t show effectiveness. As a result, the team would be faced with a lot of unanswered questions. What percentage of leads actually converted? Were the potential customers happy with these interactions?

This means businesses will have to take stock of their goals and current practices to identify the ideal number of metrics for their unique needs. Although there is no precise number that works best in every situation, some experts have managed to extrapolate ballpark ranges based on current practices.

There will be some variance depending on which business or department is asked. Researchers from Taiwan’s Tamkang University conducted a survey within the finance industry to discover the majority of respondents (approximately 66 percent) placed the ideal number of KPIs between 4 and 6. And a McKinney Rogers report on KPIs for senior management estimated the maximum number should fall between 8 and 10.

While there is no solid ruling on the issue, most experts agree that it is important to strike a balance that fits your needs.

Challenges in KPI Reporting

When reporting time comes, your IT team might be feeling the pain:

  • Dissatisfied or confused end users
  • Time-consuming manual processes
  • Security gaps
  • Slow delivery time

It's time to alleviate that pain—and bring IT and the business together. 

Technical teams may believe a business user knows how to generate a report when he or she does not have expertise with BI tools. Creating and implementing KPIs as part of a company-wide strategy can address misalignments like these to ensure that business teams have both the tools and the training they need.

These discussions may also serve as a guideline for selecting the most effective reporting tool. End user experience is an increasingly important consideration for nearly every technology, but it has become a core theme in determining the value of BI data.

Computerworld highlighted a case where selecting the right tools for the job made a drastic difference in operational efficiency. Minnesota’s Department of Education had used Excel spreadsheets for its data, which led to an overly complex system that most employees couldn’t understand. The department solved its problem with intuitive dashboards and the option to display information in charts. The visualization options allowed business users to make better use of their company’s information.

On one hand, businesses want to give the right employees access to the information they need. On the other, giving everyone access to data is a significant information security risk. It is possible to meet modern business demands without handing over the keys to the company’s entire digital kingdom.

1. User Access

Empowering the business with information does not mean that IT must hand over the reins entirely. But it does mean a shift in the way information is shared.

Today’s workforce is no longer tied to the office.

Whether an executive travels to a conference across the country or a sales representative meets a client across town, your business users need data access from many locations. And there are always unexpected opportunities or situations. Imagine how your sales rep looks if he or she is approached by a potential client and isn’t able to quickly reference customer satisfaction ratings.

It is not enough to simply hand executives and marketers a database of KPI information, however. Usability plays a critical role in the effectiveness of any BI reporting.

You need user-friendly features such as search, dashboards, and visual display formats provide two primary benefits:

  • Ensures business user can easily find relevant data on their own.
  • Keeps data presentation-ready at a moment's notice.

2. Access Control in IT

Controlling access to information can alleviate some of the security concerns. If your IT team is concerned about opening the floodgates to users, here's what you can do. 

Incorporate file-level access, so users don't see information they aren't authorized to view. Put controls in place to limit users to specific subsets of data. Add inclusion rules at the library and field level as well, to tighten your control.

By implementing levels of secure data access, you can opt to streamline your settings and fine-tune them for exceptions.

When business users can access their own data, IT doesn’t have to play the role of gatekeeper every time someone wants to know last month’s total sales. This increases efficiency on both ends—and will likely lead to greater satisfaction from end users.

3. Speed of Delivery

Most data has an expiration date, but KPIs can be particularly time-sensitive.

An efficient BI platform should take data from numerous databases and servers and pull it together through remote access. This eliminates the tedious process of collecting and inputting information manually. It also improves data accuracy.

The goal behind producing metrics in the first place is to improve the business. This means teams need access to important data with enough time to act on it.

Automation is necessary for today's KPI reporting solutions. You can do this through scripting. That allows for multi-stage jobs to be completed more easily, while a series of scripts can be used to automate further. 

Key Performance Indicators By Department

It’s important to fine-tune your metrics for each intended audience. While there is no magic bullet of KPIs for every business, there are several common ones that departments use to measure effectiveness.

These should be used as a guideline as IT staff and business leaders work together to align KPIs with specific objectives and develop your own set of performance indicators.

Finance KPIs

Your C-suite team is all about the financial KPIs when it comes to measuring the success of your business. But there's more to financial KPIs than just one number.

Financial KPIs should account for everything from profit margins to inventory turnover.

Finance KPI What It Means Why It's Important
Gross Profit Margin

(Revenue minus cost of goods sold) divided by revenue

This tells you how much you make on each dollar of sales before expenses.

Net Profit Margin

Net income divided by sales

Consider this metric the true indicator of your company's ability to make a profit. Use it to make short- and long-term decisions.

Current Ratio

Measures current assets, like unpaid invoices or current liabilities

It assess your company's ability to pay all debts over a period of time. Shoot for a ratio of 1 or more.

Return on Equity

Net income (after taxes) divided by average shareholder equity

A high ROE tells investors that your company can generate growth from existing investments.

Debt-to-equity ratio

Total liabilities divided by shareholders equity

This ratio tells you how your company is funding growth.

Inventory Turnover

(Total sales times cost of sales) divided by remaining inventory at year end

Use this to determine how many times you turned over inventory each year. Shoot for a high ratio.

Sales KPIs

Sales performance data should address both the issue of work done and the effectiveness of existing practices. While metrics such as total number of sales calls may be beneficial, they don’t provide insight into performance without other critical considerations.

KPIs for sales teams should include metrics regarding the performance of the company’s products and services. And these numbers should be matched against business objectives.

Sales KPI What It Means Why It's Important
Product Performance

Ranks products based on revenue performance

Note: It's important to use an appropriate time frame to account for inconsistencies in data.

Use this to tell your sales team which products are selling well and which need to be reassessed.

Examples: top performing products, top performing reps, bottom 10% of sales

Sales Growth

Statistic calculated using the previous period sales revenue divided by current period sales revenue

This reveals the pace your company is growing at and helps you determine how many new sales are needed each period to maintain or increase that pace.

Demographic Metrics

Total revenue per demographic (age, gender, location

Watching this metric helps you understand and focus on your target market.

Quote to Close Ratio

Number of quotes divided by number of wins

Sticking with formal quotes for this metric helps provide a consistent level of customer interest across all sales teams.

Average Purchase Value

Total sales divided by number of sales

Go in-depth with this metric by including units of product or services per transaction.

Sales Target

New wins MTD vs. quote MTD or wins previous MTD

As long as the goal is challenging (but attainable!), this metric will bring out the competitive nature of your sales team—and help your company achieve short-term objectives.

Production KPIs

Production KPIs provide an overview of the total output and efficiency of production processes. Some businesses track production metrics for individual employees to encourage competition, but it’s important to keep the big picture in mind.

Production KPI What It Means Why It's Important
Product Count

Amount of product produced in a time period (shift, week, MTD)

It helps create friendly competition between shift workers (as long as quality conrols are in place).

Rejection Rate

Rejected pieces/processed pieces

Keeping this metric close to zero helps organizations reduce operational costs.

Machine/Line Rate

Amount of time it takes a machine or assembly line to produce a good

Your manufacturing floor wants to keep this metric as consistent as possible. Slow speeds mean lost profit, while fast speeds affect quality.

Takt (Cycle) Time

Time it takes to complete a task or specific set of operations (static cycle time = actual measurement of a single unit from start to finish; dynamic cycle time = overall average cycle time)

Displaying this metric helps floor managers see the bottlenecks within a process. Static cycle time may change depending on failures, parts availability, resource availability, or even demand. Dynamic cycle time more accurately reflects a steady state of production.

Overall Equipment Effectiveness (OEE)

Availability x Performance x Quality

Higher OEE values mean more efficient utilization of staff and machinery.

Downtime

Time a machine or assembly line isn't producing goods

Downtime is one of the most important metrics for a manufacturing facility. And reducing downtime is the easiest way to increase profits.

Marketing KPIs

Marketing KPIs should provide insight into the effectiveness of both inbound and outbound campaigns, as well as how customers perceive those endeavors. 

Marketing KPI What It Means Why It's Important
Traffic Sources

Number of visitors for each source

Your web team uses this to see how visitors are finding your website (e.g., in organic search, paid ads, or referring URLs)

Return on Investment (ROI)

(Attributable revenue times campaign investment) divided by campaign investment

This tells your narketing team which campaigns are generating revenue.

Cost Per Lead

Total cost of campaign divided by number of leads generated

Use this to justify the time and money spent on marketing projects.

Conversion Metrics

Number of leads divided by number of wins

Monitoring this metric helps you determine the quality of your leads and accuracy of marketing campaigns.

End Action Rate

Number of users that start activity divided by number of users that complete activity

This tells you how often a prospect completes a desired action. 

SEO Keyword Ranking

Listing position of websites in keyword results for each search engine

A higher ranking increases click-through rates. So this metric tells your marketing team which keywords to focus on.

Technology Considerations for Measuring KPIs

The growing interest in business metrics has produced endless business intelligence and KPI reporting tools. That means it can be difficult to determine which solution will provide the most value for the lowest cost.

Knowledge and experience vary by department. So you need to make sure data is accessible to a user at any level of technical knowledge. This can be accomplished through dashboards that are customizable to your users across departments. Putting data in dashboards makes it accessible to business users who just want to point and click to get information, as well as knowledgeable staff accustomed to reporting.

A reporting tool should facilitate decision making by:

  • Identifying trends and providing visualizations
  • Providing clear ownership details for all KPIs
  • Having customizable dashboards
  • Allowing for cross-platform interoperability
  • Enabling anytime, anywhere access
  • Developing and sharing real-time data

There is a wide range of KPI reporting tools available. Some are designed for crafting performance metrics reports specifically. Others for general-purpose business intelligence.

When selecting a tool for showcasing performance data, it is important to first take stock of the company’s existing IT environment. Knowing what platforms must be supported and what types of data the company wants to analyze will help you in the planning phase.

Explore KPI Reporting >

Use KPIs to Save
Monitoring key performance indicators help you find savings and move the business forward. But that's just the tip of the iceberg. Find out how much you could be saving if you modernize business intelligence on IBM i.
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