KPI is the system that includes the number of indicators which are used by departments heads to evaluate their staff's work effectiveness. The system is implemented to gain the strategic goals. Often the main goal is the support of team work, based on various departments' staff interaction. Here the general point is the absence of contractions. One employee's functions should not slow down or disturb the others' work.
KPI implementation has such advantage as staff work effectiveness increases, staff is motivated, correct defining of priorities and main goals, visibility of situation conserned the general effectiveness of company activity.
The process of development and implementation is said to have the following steps:
- Pre-project activities, which include the agreement about the key points with top management, planning, project group creation, research and analytical work.
- Next is the creation of methodology for implemented system: organization structure optimization, building and testing of appropriate models, check again the existing company management model. You might need to create and launch new system of guidelines and training materials. On this stage the number of factors is counted: the possible changes, which can cause the change of corporate culture, development strategy for after system implemented, new report policy to launch for all levels, support of relevant indicators.
- Build the information system. Firstly you will need to write the technical task for system setting. After that you can proceed to training and informing the staff, also to test expluatation.
- Last stage considers KPI implementation in industrial expluatation.
Why implement KPI system for managers?
KPI implementation for managers is essential for a company in market frame, which have the goal of maximul profit. The most important factor is the qualitative clients' needs satisfaction. Company income depends on it, therefore staff should be interested in improvement of their work with clients.
This system indicators present visually the process of goals fulfillment. Also it allows to analyze the devaition from planned direction if any. The complex of actions performed is directed not only on work result's monitoring but also on timely correction done.
One of the main aims of KPI is the results' detailed description. Not only the final result is evaluated here – sales volume - but also the amount of resources spent and the quality of aim fulfillment process.
What indicators must be evaluated first?
All most important indicators to be evaluated in frame of implemented system can be divided to the following groups:
- Process indicators. They show visually the result brought with work for the certain period. To evaluate them the process and the quality of work on clients' queris are investigated. Also the creation and launch of new product on the market are analyzed.
- Client indicators which show the level of customer satisfaction. They help also to determine the quality of interaction with distrubution channels and the number of newly attracted buyers.
- Financial indicators are essential to determine the external economy status of the company. They help to analyze the trade flows, company profitability, market cost of produced goods and the common financial flow.
- Criteria of development are to investigate the dinamics of company development. For this purpose the key employees' work productivity is researched, the turnover of staff, motivation stimulation tools' effectiveness, the expences per each emplyee.
- The external enviroment indicators are also of big importance, as they actually help in definition of the currect level of market competotion, price fluctuations, and the common principles of selttled price policy.
How to organize the effective work of sales department?
For the effective work of sales department organization, you need to engage in extra actions, as effectiveness is defined not by profit only. The profit is the main but still not th eonly goal. That is why you need to implement the key indicators for the department in general and also for each employee.
The key indicators for the sales departmnet staff and their effectiveness evaluation are listed below:
- The planned sales volume plan is realized, measured in money and amount – this is one of the main indicators. It displayes how much effectively the work is organized. the success of the whole enterprice depends on it, therefore this indicator's analysis is on the first place.
- Investigation on sold goods or services, also on auction offers. It allows to evaluate the sales managers knowledge, and direct them to a further trainig, if any knowlegde gaps detected.
- Feedback – this indicator service to research the time passed from the moment of client query to manager response. Timing limit must be strict here, as long delays can make the client leave and buy at your potential competitors'.
- Client base processing quality. Sale manager receives the expected profit or amount of clients plan for one's work effectiveness growth. Otherwise the expences spent on marketing and experts etc. can exceed the gained income.
- Engage the social nets to increase the clients base and growth of sales volume.
Nowadays all large companies use Internet to increase the effectiveness of their activity. They create the topic forums, web sites and groups in social nets, where the relevant information is published about the product, campaigns, and the communication betweeen sales managers and potential buyers is done.
How to control the effects
Nowadays in companies the separate departments are formed with the staff for account and evaluation of work on effectiveness key indicators. These departments are included in the structure of financial or HR department.
Sales departmnet heads and other interested persons should not be inviolved in information collection to evaluate and to control their own work effects. On some occasions it is allowed to let them do it, but still for data analysis independent experts are invited. They are able to give the objective opinion. audition can be selectable or full. Penalties should be imposed if false information is given.
It is essential to investigate the key indicators constantly, as the business situation changes rapidly: after some period of time passed, a number of indicators can become obsolete, some of them also can suddenly plane the first role and provide the positive result.
How to evaluated the collected indicators
Indicators of KPI system are the tools for the evaluation, used by top managers of various levels.
To get the objective evaluation, which shows the real situation, you need to measure the following business process characteristics:
- Firstly, check the positive effect and how it correlates with the expectations. This result can be the profit, income, the amount of clients, company reputation. Among the alternative features are the staff competency, the amount of goods, market share of the company, production volume, the amount of goods distributed.
- The positive result is compared with the negative result. The side effects are inevitable. They are: amount of defective goods, credit and receivables, staff turnover, the amount of lost clients and so on.
- Expances of material and non material resources in money equivalent. Also the time, spent on work, is determined. After that the indicator of resources and time spent is compared with the positive results.
KPI for sales department: mistakes and traps
The following common mistakes can appear while KPI system implementation in sales department:
- Goals are impossible to gain. The possability of goal realization must be no less than 70%. Otherwise it will negatevily effect the whole processes and result in extra expences, and later discredit KPI.
- Inconsistency betweeen the indicators of departmnet in general and each employee particularly. This can happen if a lot of low margine goods are included in assortment.
- Unreasonable elaboration of indicators. More simple indicators development need less time. The existing system can always be perfected if needed.
- Too much number of indicators is engaged. Ususal number of task per employee is 5, per sales department head – no more than 6-8. Depending on results, its number can be increased or decreased.
- Development indicators are not used, they are deleted from the system implemented. In this case you cannot create the long term strategy of development and evaluation for your company.
- Staff in not well informed about implemented system. Feedback is essential, it allows to prove that each employee understands one's task.
KPI for sales department head
The goal for any sales department is the goods distribution, market share, client base and profit increase. For this reason you need to engage the indicator while the KPI system is implemented, which can evaluate the quality anf client satisfaction, the technology, financial aspect of the task, and the product itself.
KPI kit for experts must cover all tasks, given to them, still being not too vast. Therefore the one indicator is enough per each goal.
KPI for sales manager: the example
Many sales departments nowadays pay their managers in frame of the following scheme: wage + personal sales %. This approach at first glance seems to be reasonable. But it has a number of disadvantages: no motivation to increase the client base; no opportunity to increase the profit caused by various reactions in the market, not the managers' work; sales % is paid even if business is not rentable; absence of team work and no interest in service quality improvement.
Other solution is KPI complex system implementation, based on the numebr of effectiveness indicators. Clear example is the following salary scheme: monthly wage + personal sales % + % depending on newly attracted buyers + bonus for qualitative service and clients consultation.
Company head can correct this scheme depending on the company goals: you can change or add other effectiveness indicators. In this case the staff will be motivated to improve the work in various directions, which are selected as the priority in this company.