If your organization has a hierarchy then so should your metrics.

KPI Trees are a great way to connect the entire organization to the ultimate success metric while giving people at all levels a clear view of how their work connects to the ultimate success metric and to the work of other teams.

So what the heck is a KPI Tree?

A KPI Tree is a multi-level, mathematically connected view of the building blocks of the business.

I find KPI Trees are a critical way for everyone in the organization to understand how the business actually works. They provide clarity for each person to understand how the work they do drives a higher-level metric. And, conversely, they can see how something they are pushing might detract from a different metric. For example, one team might develop a service program in a retail store that requires a service counter that is fully staffed all day long. However, that dedicated use of labor might cause a Sales Per Labor Hour metrics to go sideways and ultimately negatively impact the profitable growth.

How do you build a KPI Tree?

Did you know that we humans can’t walk in a straight line without visual cues to keep us focused on our path? Not only can’t we walk straight, we actually walk in circles if we can’t clearly see where we’re going.

It seems we also drive our businesses in circles if we don’t have strong focal points like clearly defined visions, goals and strategies.

It’s easy to see the parallels in our business environments. Without a clear vision of where we’re going, it’s easy veer off course. In the business world, we’re constantly bombarded by internal and external demands for short-term change. Those demands are often driven by overly narrow data analysis (such as daily or even hourly comps), emotional reactions, gut feel, wild ideas, competitive shifts, and more.

So what do we do about it?

Q. How are sales forecasts like baby due dates.

A. They both provide an improper illusion of precision and cause considerable consternation when they’re missed.

Our daughter was born perfectly healthy almost two weeks past her due date, but every day past that less than precisely accurate due date was considerably more frustrating for my amazing and beautiful wife. While her misery was greater than many of us endure in retail sales results meetings, we nonetheless experience more misery than necessary due to improperly specific forecast numbers creating unrealistic expectations.

I believe there’s a way to continue to provide the planning value of a sales forecast (and baby due dates) while reducing the consternation involved in the almost inevitable miss of the predictions generated today.

Breaking down our metrics into these three levels takes some serious discipline. When we decide we’re only going to focus on a relatively small number of metrics, we’re doing ourselves and our businesses a big favor. But it’s really important we’re narrowing that focus on the metrics and objectives that are most driving the business forward.