Ellen Comeaux outlines how tracking the right KPIs — not just more of them — can reveal hidden inefficiencies, improve performance and align teams around what really drives business success.
Equipment finance companies can produce endless rivers of data. I’ve seen quarterly review decks balloon to 80 pages or more as month after month, a shiny new metric gets added to the list to track — and remains there indefinitely. But data for the sake of data is not enough to justify the valuable time and limited resources it takes to track and manage it all. Yet it’s clear that consistent performance monitoring and metric tracking sparks action and helps businesses monitor progress to goals. What’s key is ensuring you track the right metrics and elevate the most important ones as Key Performance Indicators (KPIs). Taking the time to evaluate the metrics your company is tracking is critically foundational to a successful KPI effort.
Equipment finance organizations that regularly track KPIs within the business can gain valuable insights for improving operational efficiency, competitiveness and decision-making. Unfortunately, too many businesses waste time on metrics that matter little to their ultimate success. Worse yet, some avoid identifying KPIs altogether. It’s essential to establish a rhythm that narrows the focus to the metrics that matter — actionable data delivering the greatest impact — to achieve meaningful results. This requires understanding whether a metric is a true KPI and considering other critical factors.
The following recommendations for launching and enhancing KPI tracking efforts are based on my decades of experience as an equipment finance leader and industry advisor. But first, a personal observation to lay the groundwork for effective KPI initiatives.
When working with various leaders in the industry, I have often been surprised by the siloed view many leaders take of their function or business line, particularly when measuring success. These leaders are typically very strong and capable in their area but are so focused on their immediate world that they may neglect gaining deeper insight into the bigger picture.
The point is that everyone, regardless of their position in the organizational chart, should understand how their business defines and measures success. They should also recognize how their individual jobs, functions and business lines contribute to the overall strategic goals of the broader organization. This knowledge is essential for optimizing job performance, career advancement and outcomes for the business. And while direct involvement in KPI efforts may fall on the shoulders of specific leaders, everyone can benefit from learning about KPIs and the best practices for leveraging them.
START WITH ‘SUCCESS DRIVERS’
The first step in building a solid foundation for measuring, monitoring and evaluating performance through KPIs is to identify a company’s success drivers. These are the factors driving success for the organization, and for specific functional teams and business lines within it. Examples of success drivers that may be important to an equipment finance organization include strong relationship management, by leading with a customer-centric approach; efficient and modern operations, which make it easier to do business internally, and for your customers to do business with you; and effective asset and risk management, which encompasses the full lifecycle of the equipment transaction.
There are five key reasons to begin KPI efforts by understanding what success drivers are critical to the business. Skip this step, and the disconnect could undermine KPI results.
• High-Impact Focus: By identifying their key success drivers, businesses can concentrate KPI efforts on those with the potential to generate significant, positive change for the company. This will also avoid the problems that come with “metric overload,” which wastes time and resources on tracking data of little value.
• Informed Decision-Making: With a clear understanding of what drives success comes the ability to make strategic decisions based on KPI data and analysis, thereby minimizing risks and maximizing potential gains.
• Proactive Problem-Solving, Performance Monitoring & Evaluation: Identifying and monitoring a company’s success drivers facilitates early identification of potential issues or areas of concern. It enables companies to take corrective actions quickly and accurately assess the progress of their programs.
• Effective Communication: Equipment finance professionals who understand their company’s success drivers can more easily interpret why certain decisions are being made within the business. In some cases, they can even anticipate changes. This knowledge also equips leaders to communicate more clearly with their teams. It’s a critical capability given that change has become a constant in today’s business environments.
• Competitive Advantage: Looking beyond any internal drivers, companies that gain a deep understanding of the success drivers important to customers and stakeholders outside their businesses can distinguish themselves competitively and foster growth.
PRIORITIZE POWERFUL KPIS
After diving into the success drivers that are critical for the company and its constituents, it is time to identify the measures needed to achieve those goals. This is where KPIs play a critical role. By selecting and prioritizing the most important KPIs, organizations have the data needed to stay on the right path — or course-correct when issues arise. Examples of KPIs that may be relevant to equipment finance businesses include:
• Conversion rates (application-to-fund)
• Share of wallet
• Cycle times (such as approval times, or from application to fund, depending on the complexity of your business)
• Portfolio yield (or return on assets), which measures the total revenue generated from the portfolio relative to the size of assets
• Credit loss or delinquency rates.
What exactly are KPIs? They are measurable values that demonstrate how effectively a company is achieving essential business objectives. However, while all KPIs are metrics, not all metrics are KPIs. Businesses typically track many types of metrics in the course of their workday. Few of these metrics qualify as true KPIs, and the ones that do vary depending on an individual company’s success drivers.
Remember, too, that the best KPIs are those that can be consistently defined and measured. They are relevant to the business, easy to understand, and can be benchmarked against the competition. Speaking of benchmarking, industry resources including the Equipment Leasing and Finance Association’s Survey of Equipment Finance Activity (SEFA) can help with this.
The following criteria are helpful in streamlining data options to prioritize metrics that are key indicators of success. It’s best to focus on just a few KPIs to start — five to seven perhaps, but no more than 10. Less is more here, as tracking too many KPIs can dilute the effectiveness of a company’s efforts.
CRUCIAL CRITERIA FOR DESIGNATING A METRIC AS A KPI
• Strategic: Ties directly to a strategic goal or objective
• Quantifiable: Has measurable data behind it
• Relevant: Impacts desired business outcomes
• Time-bound: Trackable at regular intervals
• Actionable: If it’s not something you can affect, it’s not a KPI
• Achievable: Helps the company reach attainable goals
• Ownership: An identifiable owner of this metric exists within the business
FACTORS TO CONSIDER WHEN IDENTIFYING OR REVIEWING KPIS
• Key stakeholders: Define and understand them
• Leading vs. lagging indicators: Use both
• Measurement systems & data integrity: Be clear on operational definitions and leverage automated systems whenever possible. Also, consider how leveraging AI can enhance these efforts
• Monitoring frequency: Select the appropriate frequency considering volatility, impact and predictability
• Prioritization of the critical few KPIs: Start small (five to 10) and build as needed. Align to strategic goals, consider the impact and regularly review and refine them.
Once the right metrics are prioritized based on key criteria and other considerations, it’s time to launch or enhance KPI efforts. This will involve tracking the identified metrics regularly, adjusting them as needed and using that knowledge to hit or exceed targeted business goals.
How exactly are companies using KPI tracking to achieve strategic objectives? A survey by the American Productivity & Quality Center cited performance improvements as the top reason that businesses monitor KPIs (48%).1 Other objectives the survey identified included ensuring quality and consistency (46%), optimizing resource utilization (44%), reducing costs (44%) and boosting revenue (33%).
Focused KPI efforts are benefiting specific equipment finance companies as well. For example, one business that wanted to grow volume in a key segment started tracking share of wallet as a KPI. Turns out the company was seeing only 3% of the business of one of its top programs. The company worked to understand why and to make the changes needed, thereby increasing share of wallet to 20%. This increased business exponentially and the company became a more valued and trusted partner for customers. In another example, an equipment finance organization had measured success with a heavy emphasis on spread, thinking the higher the spread, the better the business. When digging deeper into the overall cost of doing business, however, the company learned some segments that delivered high spreads were also consuming the most resources. The ultimate return on assets (ROA) was lower and the profitability of these segments was lower than expected. This led to some tough conversations that otherwise would not have taken place if the company had not expanded KPIs.
REMEMBER THESE TAKEAWAYS
KPIs can be superpowers for equipment finance success, delivering critical business insights that other metrics can’t. But companies must curate their data to achieve measurable results. First, identify the success drivers important for the business. Next, ensure everyone in the company understands how “success” is defined and measured throughout the organization. Then focus KPI efforts on the metrics that really matter strategically. •
1 “What are Key Performance Indicators (KPIs)?” The APQC Blog. American Productivity & Quality Center.
Ellen Comeaux is a Director with The Alta Group who brings more than 30 years of experience in commercial finance, banking and strategic development to her advisory work for clients of Alta’s Strategy & Competitive Alignment Practice. She is also a Business Workshop Content Creator and Instructor for the STRIPES Leadership Program in partnership with Monitor and performs advisory work through Reimagine Advisors. She previously held senior leadership positions with EverBank (formerly TIAA Bank), GE Capital, GE Real Estate and GE Capital Bank.
