Key Performance Indicators (KPI’s) provide insight into the performance of every business. But defining these metrics in some departments can be a little more straightforward than in others. Take for example sales and marketing; new leads and closed business are used commonly. In manufacturing, product production, reject ratio, takt time, and inventory turnover are used. Overall business performance can be tied to metrics like gross profit, net profit, EDITDA, etc. But KPI’s for IT can be a little tricky to define. The measurements used historically provide a poor indication of real performance. In fact, a lot of the KPI’s commonly used don’t really have anything to do with overall company performance. So what are the right indicators to use to determine how well your IT is doing? And how do you track progress over time?
How IT is measured today
In a large number of small businesses, the executive team and the IT departments speak different languages. Whereas the executives are typically focused on strategic initiatives, the IT department is inundated with the day to day tactical operations necessary to deliver the core business applications. This disparity causes a gap in the conversations between the groups, and leads to a conflict in how each side defines success. This leaves companies struggling to find a middle ground when defining the standard for how performance will be measured in IT. The company needs access to applications, therefore they may settle with uptime or availability as a KPI. The company will inevitably need to store more data and run more applications, therefore system capacity may be a measure of performance, and so on and so forth. Unfortunately these measurements are only indirectly related to a company’s performance. It would be similar to making the sales KPI the overall number of cold calls made, without also measuring the overall cold call to closed deal ratio. Although cold calls are related to new business, it is just not a good enough measure alone to determine the actions necessary to drive performance. To really dig down deep into how well IT is performing for a business you need to move past the traditional KPI’s and use something that is not only directly related to company performance, but also provides actionable information. When success for a business is defined by profit, then IT should be measured by its ability to help create more profit.
The new way to measure IT performance
Technology is integrated so closely with business process today, that it impacts almost everything we do. And because of this tighter integration, we now have a new way to measure IT performance. The metric we use to determine how well IT performs over time is Revenue per Employee or (R/nE) Where R = revenue and nE = number of employees. If IT’s job is to create efficiency and automate processes, then the revenue a company makes divided by the number of employees provides a very powerful view into the success or failure of technology initiatives within that company. As a company grows, this number needs to go up. If it continues to go down over time, it is a clear indication that the technology used within the company is not doing its job. All other measures for IT are irrelevant when you consider the true reason you have technology. To create scale and efficiency for the business. When you start to focus on revenue per employee, you’ll quickly realize a successful technology team is the one that can help you strategically use technology, not the one that manages and maintains infrastructure and applications. Once you start to measure IT by this KPI, you’ll be able to focus your IT resources on the types of activities that build scalability and profit!