Choosing the right key performance indicators (KPIs) can dramatically improve the performance of an organization. KPIs are an excellent tool to achieve strategic business goals. But only carefully selected KPIs actually provide the information required for monitoring and assessing performance. Whether you are a business owner or part of a management team, you need to know the steps required to select KPIs that aid continuous improvement. In this KPI article, we will be discussing the process of choosing KPIs that drive the achievement of strategic and operational objectives.
Define the Organization’s Strategy and Goals
The first and most important step in choosing KPIs is to clearly define your business strategy and operational objectives. To measure performance successfully, you must identify and focus on the vital aspects of your business. First, you should study the most successful companies in your field. Study consumer demands and the trends in your industry. Then take a closer look at your vision statement. Where do you plan to be in the next 5 years? This will enable you to create a strategic plan and focus on the most critical factors that will influence the fulfillment of your goals.
Identify Critical Success Factors
Next, you should identify the most critical success factors (CSF) that will influence the achievement of your strategic goals. For instance, in most companies, CSFs include product or service quality, order processing speed, and quality of customer care and support. Then, for each CSF, define one or two KPIs. For example, a KPI used to measure the order processing rate is the lead time (i.e. the time lapse from the moment the order is placed to the time the products are delivered to the customer). In general, you would want a KPI that measures your achievement.
Select Strategic and Operational Level KPIs
Strategic KPIs are performance metrics that indicate the overall progress of the company. They are directly related to the company’s critical success factors. These strategic performance indicators are usually measured on a quarterly or half yearly basis.
Operational KPIs are selected on a divisional or departmental basis. Each department will perform a distinct function in the organization. So a relevant KPI should therefore be chosen for every important function the company performs. For example, in a manufacturing company that needs to produce 100% error free items for the sensitive medical equipment industry, a good KPI in the production department will be the error rate. Every operational KPI must be directly related to one of the strategic KPIs of the entire organization.
Allow Team Members to Take Ownership
All employees, who will produce the results to be measured by the KPIs, must take ownership of these KPIs from the onset. They should fully understand what is to be measured, why it is being measured and how to measure it promptly and accurately.
In addition, they must be able to give correct interpretations to the KPIs and make necessary adjustments to improve the results. This is particularly important at the operational level. Management can take full responsibility for strategic level KPIs but departmental team leaders and members should take responsibility for monitoring and improving performance at the operational level.
Set Targets for the KPIs
After due consultations with the management team and leaders of all divisions and departments, you should set reasonable and achievable targets for all KPIs. Operational targets should be measured either per week or per month. This will make it easier to discover any need for improvement early. For example, in an online marketing department, a KPI can be set for the number of leads generated per week. And a reasonable target for an existing online brand may be to generate 500 fresh leads every week or to get 500 new subscribers for the company’s newsletter.
Use a Dashboard and Balanced Scorecard to Monitor KPIs
The values for every KPI must be available in real time or next day by everyone involved in achieving or reviewing it. The process of collating and recording all relevant data for each performance indicator must be transparent and trustworthy. A Dashboard that provides historical figures, current data, and forecasts of expected results should be available for every KPI. Of course, I would recommend the use of OBIEE with BITeamwork, Essbase and Dodeca.
Conclusion
KPIs that are chosen through a well defined procedure will produce better results than KPIs chosen at random. This KPI article has outlined the steps required to select KPIs that will drive the achievement of strategic objectives. These include defining strategic goals, setting corresponding operational objectives, allowing all team members to participate in the selection process and setting definite targets for each KPI.
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I’m searching for KPI articles and found your post. Your post is very informative and helpful for business owners like me. It’s a great post! Thanks Steve.
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Hi Mike,
I’m glad I’m helping! Thank you for your comment, it gives me a lot of mental support to keep this blog going.
Steve
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Interesting article. I often see firms setting KPIs but they don’t help them with achieving their strategic goals, so I think that’s so important. Understanding why you are measuring.
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YES, and to be precise they don’t make use of leading KPIs. It’s usually lagging KPIs. More importantly they don’t have a logical way to derive their KPIs. Whereas if they had the skills, it’ll be like a daily or real time health check. Isn’t that cool?
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