KEY PERFORMANCE INDICATORS
While intuition, experience and detailed knowledge will continue to be irreplaceable, Management Information Systems offer a significant advantage in that they
- make complexity more tangible,
- provide speed in order to adapt and react to change more quickly,
- create transparency when technology keeps getting overwhelming and
- reduce redundancy, inconsistencies and error-prone data-collection processes.
Decisions can be optimized and accelerated when supported by qualitative and quantitative facts and figures. Considerable improvements can be made with
- Integrated Planning Systems for Sales- Capacity- and Cost Planning
- Business Simulations that make complexity visible and manageable
- Mix Analyis, Data Correlations or Variance Analyis yiel further details
- Integration of Scorecard Systems and Cause & Effect Models
- Dashboards and Cockpits
Data Analysis are investigations into characteristics of usually large amounts of data for a given subject. Examples are mix-analysis, correlations or data comparisons. Often these solutions require that redundant data-sources are harmonized, missing data is added and erroneous data is corrected beforehand. A solid data-model is just as essential to a succesful implementation as clear responsibilities and processes for dealing with the data.
As a means to quickly familiarize oneself with the many Critical Success Factors in an organization, the use of key figures has become a widely adopted approach. An effective system of key figures is dedicated and goal-driven. Key figures can be developed for business units, processes or complete value chains. The most value offer key figures that are linked with one another, thereby providing insights to the cause-and-effect each key figure drives.
Dashboards combine the advantages of each previously mentioned solution. They combine the essentials in clear and user-friendly systems using graphical representations and tools to control further action. Dashboards are used in management discussions and in preparation decisions as well as communications. Examples for such dashboard systems are Scorecards, Performance Dashports, Productivity Reports or Decision Support Systems.
Driving Performance using KPIs
KPI stands for key performance indicator, a quantifiable measure of performance over time for a specific objective. A Key Performance Indicator (KPI) is a measurable value that demonstrates how effectively a company is achieving key business objectives. Organizations use KPIs to evaluate their success at reaching targets. KPIs provide targets for teams to aim for, milestones to gauge progress, and insights that help people across the organization make better decisions. Key Performance Indicators (KPIs) are the critical (key) indicators of progress toward an intended result. KPIs provide a focus for strategic and operational improvement, create an analytical basis for decision making and help focus attention on what matters most.
Typical KPIs are:
- Revenue growth
- Revenue per client
- Profit margin
- Client retention rate
- Customer satisfaction
- Internal Process Quality
- Employee Satisfaction
- Financial Performance Index
The Problem is: all to often these "typical" KPIs are just copied for use ... without any consideration to its usefulness.
“What gets measured gets done.” (Peter Drucker)
On way of interpreting Peter Druckers statement is to conclude: Don’t just measure. Measure what matters. Many times however, what matters is very difficult to measure. So, often, companies end up measuring what is easily to be measured, but not exactly measuring what matters. The question about how easy the necessary data can be attained is frequently at the heart of any decision relating to the set of KPIs a company wants to start with. To make matters worse, the diversity and heterogenity of computer systems that are used to manage and store such data can be so complex and even political, that an easy way to the data seems almost out of reach.
On top of the technical difficulties another key problem can prevent a company to get the best out of its KPIs: strategic relevance. KPIs are about KEY Performance. They are not about measuring day-to-day progress, unless this kind of progress plays a vital role in implementing a strategic measure. Strategic relevance makes all the difference. Image you were engaging in climbing up the Mount Everest. At the very least you´d be planning ahead using some milestones that allow you to judge the feasibility. You would anticipate some milestones to be so critical, that they would be pivotal and ultimately decide about continuation or giving up. The weather-condition could be such a pivotal element. Your health condition as well. Wheater, Health, Supply, potential Roadblocks, Duration and Delays or the Budget that is being burned every day are certainly KPIs you want to look at, when making decisions. But you would not be overly concerned about the taste of the food you are carrying, the softness of your sleeping bag or the shape of the tent you are using. Such things aren´t of a strategic nature. They don´t ensure or hinder the execution of strategy - at least not in this scenario. When it comes to KPIs in a corporate setting, selecting strategic KPIs is key.
Ensuring access to useful data and selecting the strategic KPIs are the guiding principles that you should not miss when starting a KPI Project. But they aren´t the only important considerations.
Top 12 Principles for developing KPIs
When developing your KPI System, it is important to look at the broader picture and into the future. Almost remember: this is about getting into the future and not about reporting about the past. With this in mind, here are the most important principles to watch out for:
- Ensure access to necessary data
- Select KPIs with strategic relevance
- Be clear about the consequence of any KPI
- Define thresholds that are clearly visible
- Link KPIs to ever-day objectives and goals
- Differentiate between lagging and leading KPIs
- Let KPIs be mutually exclusiv
- Keep existing dashboards in place - don´t mix
- Attempt to get verification from different sources
- Tie KPIs to your Strategy Map
- Define KPI responsibilities and accountabilites
- Make KPIs accessible and understandable
Make your KPIs count
Key performance indicators (KPIs) are targets that help you measure progress against your most strategic objectives. While organizations can have many types of metrics, KPIs are targets that are “key” to the success of your business. These KPIs need to be monitored and acted upon, should they reach certain thresholds or limits One way to make each and every KPI raise awareness is to link it to your strategy. An efficient as well as effective way of doing this, is to include these KPIs in your strategy map. The strategy map is a graphical display of your strategy, understandable to mostly everyone.
Based on your strategy, where you define mission, vision, values etc., the true north for your organization, a strategy map requires you to define so called perspectives. These perspectives are based on the Balanced Scorecard approach by Kaplan/Norton. Perspectives highlight the main areas for focus. Typically these perspectives comprise fincance, customer, internal process and innovation but are not limited to just these. Each perspective has its priorities, goals, rationals and inititiatives that are evaluated against set measures. These measures need to be linked to your KPIs.
Implementing a strategy or executing a strategic plan almost always involves the alignment of people and processes. With KPIs linked to the strategy and personal goals/process performance measures linked to KPIs it will be much easier to see how your strategy drives performance from the top down to the workfloor.
Let us help you get to your KPI System. With workshops, templates and implementation plans, we will make sure, your KPIs drive performance, change and growth.