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Key Performance Indicators

 

Key Performance Indicators (KPI) are financial and non-financial metrics used to help an organization define and measure progress toward organizational goals. KPIs are used in Business Intelligence to assess the present state of the business and to prescribe a course of action. The act of monitoring KPIs in real-time is known as business activity monitoring. KPIs are frequently used to "value" difficult to measure activities such as the benefits of leadership development, engagement, service, and satisfaction. KPIs are typically tied to an organization's strategy (as exemplified through techniques such as the Balanced Scorecard).

 

The KPIs differ depending on the nature of the organization and the organization's strategy. They help an organization to measure progress towards their organizational goals, especially toward difficult to quantify knowledge-based processes.

 

A KPI is a key part of a measurable objective, which is made up of a direction, KPI, benchmark, target and time frame. For example: "Increase Average Revenue per Customer from £10 to £15 by EOY 2008". In this case, 'Average Revenue per Customer' is the KPI.

 

KPIs should not be confused with a Critical Success Factor. For the example above, a critical success factor would be something that needs to be in place to achieve that objective; for example, a product launch.

 

Identifying indicators

 

Performance indicators differ from business drivers and aims (or goals). A school might consider the failure rate of its students as a Key Performance Indicator which might help the school understand its position in the educational community, whereas a business might consider the percentage of income from return customers as a potential KPI.

 

But it is necessary for an organization to at least identify its KPI's. The key environments for identifying KPI's are

  • Having a pre-defined business process.
  • Having clear goals/performance requirements for the business processes.
  • Having a quantitative/qualitative measurement of the results and comparison with set goals.
  • Investigating variances and tweaking processes or resources to achieve short-term goals.

 

When identifying KPI's the acronym SMART is often applied. KPI's need to be:

 

  • Specific
  • Measurable
  • Achievable
  • Result-oriented or Relevant
  • Time-bound

 

Marketing KPIs

 

Among the marketing KPIs top management analyzes are:

 

  • Customer related numbers - New customers acquired, status of existing customers, customer attrition.
  • Turnover generated by segments of the customers - these could be demographic filters.
  • Outstanding balances held by segments of customers and terms of payment - these could be demographic filters.
  • Collection of bad debts within customer relationships.
  • Demographic analysis of individuals (potential customers) applying to become customers, and the levels of approval, rejections and pending numbers.
  • Delinquency analysis of customers behind on payments.
  • Profitability of customers by demographic segments and segmentation of customers by profitability.

 

Many of these aforementioned customer KPIs are developed and improved with customer relationship management. This is more an inclusive list than an exclusive one. The above more or less describe what a bank would do, but could also refer to a telephone company or similar service sector company.

 

What is important is:

 

  • KPI-related data which is consistent and correct.
  • Timely availability of KPI related Data.
  • Faster availability of data is beginning to become a concern for more and more organizations. Delays of a month or two were commonplace. Of late, several banks have tried to move to availability of data at shorter intervals and less delays. For example, in businesses which have higher operational/credit risk loading (that involve credit cards, wealth management), Citibank has moved onto a weekly availability of KPI related data or sometimes a daily analysis of numbers. This means that data is usually available within 24 hours as a result of automation and the use of IT.

 

Categorization of indicators

 

Key Performance Indicators define a set of values used to measure against. These raw sets of values fed to systems to summarize information against are called indicators. Indicators identifiable as possible candidates for KPIs can be summarized into the following sub-categories:

 

  • Quantitative indicators which can be presented as a number.
  • Practical indicators that interface with existing company processes.
  • Directional indicators specifying whether an organization is getting better or not.
  • Actionable indicators are sufficiently in an organization's control to effect change.

 

Key Performance Indicators in practical terms and strategy development means are OBJECTIVES to be target that will add the VALUE to the business MOST (MOST = KEY INDICATORS OF SUCCESS).

 

Key Performance Indicators (KPI’s) for Retail

 

  • Sales compared to budget/target:

 

Actual sales € divided by budget/target sales €

 

  • Sales compared to last year (or any other period):

 

Actual sales € for a given period divided by actual sales € for the period you want to compare to

 

  • Sales per Square Foot:

 

Actual sales € for a given period (usually a month or a year) divided by the total floor area (in sq. ft.) of the store. There are variants of this indicator in terms of sales per square foot of merchandisable area of choice (like walls and display units.)

  • Wage Cost:

 

Actual wage € paid for a given period divided by actual sales € achieved for the same period

 

  • Average Sale per Customer/Transaction:

 

Total sales € for a given period divided by the number of customers or transactions for the same period

 

  • Units per Customer/Transaction:

 

Total number of units sold in a given period divided by the number of customers or transaction for the same period

 

  • Conversion rate:

 

The number of transactions in a given period divided by the total number of customers who entered the store during the same period

 

  • Sales per Hour (for store or associate) – selling hours only:

 

Actual sales € for the store divided by the number of selling* hours during the same period

 

*selling hours are used here rather than total labor hours

 

  • Sales per Hour (for store or associate) – total labuor hours:

 

Actual sales € for the store divided by the number of labour hours used during the same period

 

  • Time Spent in the Store:

 

Average time spent by customers in the store can be measured through sophisticated techniques utilizing RFID and wireless technologies or manually. Reason for this measurement: There is a direct correlation between time customers spend in a store and how much they buy.


Store Manager Accountabilities

 

Key Accountabilities:

 

  • To coach and develop store teams through strong leadership: driving the delivery of retail objectives.
  • To deliver store sales and cost targets and consequently outperforming P&L targets by leading a motivated, engaged and enabled team.
  • To ensure that the retail strategy developments are implemented in the store, communicated to the team and that all individuals understand the impact this has on the store.
  • To fully understand commercial performance, driving sales and ensuring the lowest cost to the company.

 

Store Manager Responsibilities

 

People:

 

  • Deliver effective succession plans throughout the team in order to deliver planned progression and manage vacancies in store.
  • Develop the team through proactive personal development plans (PDPs) which are formally reviewed annually and informally on an ongoing basis as and when required.
  • Actively drive retention policy at store level utilizing exit interview analysis.
  • Conduct exit interviews at store level for all leavers to identify key areas of risk.
  • Through coaching and leadership ensure that the mission statement, business objectives and retail objectives are alive, understood and fulfilled in the store.
  • Identify and manage poor performers as appropriate.
  • Utilize wider resources e.g. Human Resources, Director of Security, Regional Manager, internal audit to optimize result.
  • Key Stake holder in driving Training and Development for the Store team.

 

Measures:

 

  • Absenteeism management
  • Labour turnover
  • People development
  • Succession planning
  • Exit interview analysis

 

Customer Service:

 

  • Proactively manage store mystery shopper reports striving for sustainable improvement.
  • Talk to customers directly to gain an understanding of their experience, product request etc.
  • Monitor and drive the delivery of customer experience in store, always leading by example.
  • Own and drive best practice and ensure this is shared across the store team.
  • Ensure consistency in store layouts and standards to maximise customers shopping experience.

 

Measures:

 

  • Daily floor walks
  • Mystery shopper reports
  • Retail Standards Checklist

 

Commerciality:

 

  • Ensure accurate space and grading strategy to drive sales at store level.
  • Drive the out performance of sales budgets through analysing relevant reports and coaching the Store team.
  • Utilise space management through effective seasonal moves etc.
  • Develop and maintain strong awareness of the local market and exploit opportunities as appropriate.

 

Measures:

 

  • Sales Analysis
  • Average transaction value (ATV)
  • Customer conversion analysis

 

Managing Profit & Costs:

 

  • Manage store costs in order to maximise profit.
  • Eliminate overspends.
  • Effective management of wages hour’s and costs in store.
  • Drives for sustained improvements on shrinkage, identify poor departmental shrinkage and poor department performance.
  • Compile and implement store action plan to mange stock file accuracy and opportunities.
  • Effective management of cash control.
  • Utilise support contacts – (Regional Managers, etc).
  • Internal Audit Report.
  • In the ongoing management of profit and cost to reduce loss.

 

Measures:

 

  • Profit and Loss
  • Wages
  • Shrinkage
  • Over and shorts policy

 

Communication / Relationships:

 

  • Adopt an inspirational leadership style which both encourages a high level of moral within the store team and drive a positive “Can Do” attitude.
  • Positively influence the Store team and demonstrates credibility in the Store Manager role.
  • Take ownership and drive effective communication in your store and to Head Office always leading by example and ensure communication is timely and consistent.
  • Ability to create and develop through personal innovation and leadership skills a team that will rise to the challenge of delivering against the vision and objectives.

 

Measures:

 

  • Morale in store
  • Accurate information delivered on time
  • The team with the ability to deliver key business messages consistently throughout the store