KPIs often
have a negative connotation associated with them. The truth is that KPIs are
only as valuable as you make them. KPIs require time, effort and employee
buy-in to live up to their high expectations.
A challenge
is whether the KPIs currently presented to the Board are those that allow them
to assess progress against stated strategies, and when reported externally,
allow readers to make
a similar assessment. In addition, the KPIs will to a
degree be conditioned by the industry in which a company operates. So, for
example, a company in the retail industry might use sales per square foot and
customer satisfaction as key performance indicators, whereas an oil and gas
company might opt for measures of exploration success, such as the value of new
reserves.
However,
management should not feel compelled to create KPIs to match those reported by
their peers. The overriding need is for the KPIs to be relevant to that
particular company.
What pops
out of the end of a process is an output. An Outcome is a level of performance,
or achievement. It may be associated with the process, or the output. Outcomes
imply quantification of performance. At one level, it is simple. Unfortunately,
the relationship between processes, outputs and outcomes can be difficult to untangle.
For
example, let us consider Staff Satisfaction. A desired organisational objective
might be to achieve an improved level of Staff Satisfaction (outcome). There is
no single process that results in Staff Satisfaction. It is the result of
multiple processes and their associated outputs.
We need to
be able to express these quantitatively, so we can track progress over time.
Then, we can decide which of our organisation’s processes will impact on each
Outcome. At that point, we will know what the Outputs are and also their impact
on the Outcome.
The primary
reason for including performance indicators in corporate reporting is to enable
readers to assess the strategies adopted by the company and their potential to
succeed. KPIs presented in isolation from strategies and objectives, or vice
versa, cannot fulfill this requirement, and will fail to provide the reader
with the level of understanding they need.
To move
forward, it is crucial that we understand the current state. Misalignment
between company and personal goals can impact effective KPI selection. Use a
gap analysis to uncover any misalignments. Knowing this information is
extremely advantageous, as it gives your organization a blueprint of areas to
address from a business process/organization standpoint or to consider and
target when selecting KPIs.
Finally, it
is worth remembering that there is no science behind KPIs –
it is an art, something that you can only get really right by trial and error.
For
example, one expert may recommend
a list of KPIs and another expert would likely
recommend a completely different list. Neither of them are wrong. Both lists
will have their advantages and disadvantages. So, be confident with your
target-setting brainstorming sessions, filter and seek agreement. Be realistic,
but be wary of being vague. Be ready to measure your organization’s success!
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