Most performance management projects begin organically. An organization wants, or needs, to improve performance and so begins to scrutinize different aspects of the business. Projects are put together to increase this or reduce that, without questioning whether increasing this or reducing that really succeeds in improving the company.
Key Performance Indicators, (KPIs), are the holy grail for companies trying to determine whether they are succeeding improving their performance. As the name indicates, if you focus your attention on these important indicators, success can be acheived. How do you find these KPIs? What needs to be tracked to make a business work better? Shouldn’t there be a list of KPIs that anyone can use?
Yes, there are lists, best practices, and industry standards that can help organizations as they start to define their own KPIs. These lists, though, may actually distract an organization into monitoring things that aren’t important for their particular situation.
To find the right KPIs, the company must return to their original reason for improving performance. Like an annoying child that continually says “Why?”, if you keep asking why you need to improve performance, those question are answered by strategy. Your strategic goals are why you are doing something.
* Ask why this measure is important?
It is too easy to make assumptions about the importance of a measure or a metric without any regards as to why it is important. Take customer satisfaction- that’s important, probably a KPI -right? Here is an interesting column by Jonathan Becher who asks “Why do you want satisfied customers?”
* Strategy is not just numbers.
Many organizations assume they take a balanced approach to managing the company, when they are only focused on the financial elements. There are a number of non-financial areas that contribute to the financial well-being: customers, growth strategies, and internal practices. Apple’s Steve Jobs was interviewed on the CBS television program, 60 Minutes. He said that if you manage the top-line, which is the strategy, the people, and the products, the bottom line will follow.
* Competing on analytics requires strategic thinking.
Analytics alone do not constitute strategy, so says Tom Davenport in his book Competing on Analytics. Using analytics can help executives make better strategic decisions by providing more information than just “gut feelings”. And in this fast-paced, competitive business landscape, few businesses have the luxury of waiting for their numbers to tell them something.
The key to KPIs is goals. Start with the goals that point to desired outcomes rather than just indicate activities. When there are defined outcomes, the choices for what would be a key indicator becomes much more apparent. Plus, when an indicator proves itself an ineffective measure, or some better indicator presents itself, with the attention on outcome rather than output, it is much easier to change.