‘What gets measured, gets managed’
The term KPI is an over-used and little understood term in business and strategic management. It is widely confused with “metrics” (more jargon) – if we can measure it, it is a KPI, and if you cannot, it isn’t. And so with a wall of “metrics”, the true value of the core KPIs can often become lost.
Strategic KPIs should provide management and all employees with clear goals and objectives, coupled with an understanding of how they relate to the overall success of the organisation.
A KPI should be seen as:
- of fundamental importance in gaining competitive advantage and is a make or break component in the success or failure of the organisation.
- relating to performance when it can be clearly measured, quantified and influenced / impacted by the organisation
- providing ‘must have’ information on future performance..
KPIs cannot be measured in a vacuum. You must clearly understand what is possible – have upper and lower reference limits for KPIs in reference to the marketplace and the competition. This of course requires an understanding of benchmarks. Benchmarks enable you to check what other successful organisations see as crucial in building and sustaining competitive advantage.
- Quantitative indicators which can be presented as numbers
- Practical indicators that link to existing business processes
- Directional indicators specifying whether an organization is getting better or not
- Actionable indicators which are controllable and therefore measure management of change
- Financial indicators used in performance measurement
Key performance indicators, in practical terms and for strategic development and implementation, are objectives to be targeted that will add the most value to the business.
These are also referred to as key success indicators.
You need to know the Key Performance Indicators (KPIs) of your business at a moment’s notice to define and measure progress toward your strategic goals. These are measurements of the critical success factors of your business, helping you regularly assess performance of your business units, divisions, departments and employees.
Stop measuring what doesn’t matter … get answers to what you absolutely need to know.
So many managers have difficulty in identifying and understanding the vital few KPIs that really matter; instead tracking a vast array of indicators that are easy to measure – resulting in a ‘wall of data’ and no real insight on vital management metrics.
You should identify the vital few KPIs, always considering
- Internal Process and
- Learning and Growth perspectives
Before you decide on KPIs you should first carefully consider KPQs – key performance questions – questions that capture exactly what you need to know, to track and monitor strategy execution and implementation. KPQs focus attention where it belongs – on what actually matters most.
For example a common KPQ would be ‘Are we generating adequate Net Profit results?’ Here we are not simply measuring Net Profit, rather measuring it in context of ‘adequacy’ – a subtle but substantial difference – which throws into the mix how to assess and determine ‘adequacy’.