By Rich Bond
ChiefExectutive.net recently ran an article by Stephen King (not the horror writer) that said CEOs should be looking at five Data-Driven Key Performance Indicators (KPIs) on a regular basis. https://chiefexecutive.net/5-data-driven-kpis-for-ceos/
While the author mentions five great topics, they were at too high a level in my view and attempted to cover everything under the sun. The KPIs listed were so general that it would take the CEO much too long to evaluate them, and their generality made them virtually meaningless. Buried in this article were all kinds of important subjects like costing, which are not simple nor can they be dealt with quickly. There weren’t any specific KPIs that would be examples for performance improvement. Too broad KPIs are not particularly helpful nor actionable in my estimation.
I’ve come to view KPIs as being quick and dirty, but very effective. The idea behind KPIs is that a CEO can get a good view of the financial status of his company in five to 15 minutes, and if necessary, follow up and take corrective action. I believe that a one-page summary of the KPIs should be distributed to management by the 2nd business day of the month. For example, if Gross Profit Margin is tracked as a KPI, and it is down or behind plan, then there should be some sort of follow up. If gross margin is on-track, then there is less reason to delve heavily into the financial results on a monthly basis, and the CEO can wait for the quarterly results.
When I worked for Seagram Distillers, they distributed a summary depletion report on the 5th business day of each month. Everything stopped as we waited for the president, a real larger than life character, to react.
When I ran my family business, I was able to sit down with my father and brother for 15 minutes and give them a good overview of how the business was doing.
My friend and interim CFO Steve Huff believes in reviewing KPIs in more depth and sees them as a reason to meet with the CEO. KPIs are important particularly for public companies, where they are useful in making earnings projections or can be helpful for companies in a tenuous financial position.
Do you use KPIs? Which ones? Email me at Richard.email@example.com or call me at 203-216-0618. I’d love to discuss how the right KPIs can improve your business, and how the right CFO or Controller can deliver them to you.