As a manager, it is your job to keep track of the big picture. You must clarify the company's vision and mission and know in which direction the company should move. In a complex company, where (almost) everything can be measured and how many different aspects of your business can affect your overall mission, this is not an easy task.
Fortunately, there is help, because that's what goal management and KPI reporting help you with. The method helps you find out when something is a success or a failure, and if your KPIs are prepared correctly, they show where you need to put in to correct or improve a situation.
KPI stands for Key Performance Indicator and is an effort and result measure that tells about the direction and speed of the fulfillment of the company's strategic objectives. KPIs differ depending on which organization sets them:
Whatever KPIs you choose, they must reflect the organization's goals, be central to the organization's success and be measurable. Often KPI have a long time horizon and the definition of what they are and how they are measured rarely changes. However, the goals for the individual KPI may change as the organization's goals change or as the organization approaches a goal.
REQUIREMENTS FOR CPI
- They must reflect the organization's business goals
- They must be measurable
- They must be central to the company's success
Your KPIs are based on the company's mission and vision. With a concrete mission in hand, you are ready for the next phase: Identifying your business goals.
Based on the mission, you must identify some concrete and realistic ones business goals. Where would you like to go in the coming financial year? It can, for example, be that you want to increase turnover, strengthen your brand, increase customer loyalty or optimize internal processes.
To achieve each goal, there are probably several different areas you can screw up. Eg. can a webshop that wants to increase revenue work on improving the conversion rate of visitors or increasing the average order size. These areas of action are called yours concrete goals. The concrete goals are also often called CSF or Critical Success Factors. A designation that emphasizes the importance of your concrete goal (or CSF) having central importance to your company's success.
At least one is linked to each concrete goal CPI, but there could easily be more. However, be careful not to have so many that you lose track. For each KPI, you identify which areas have an influence on the conversion rate and which can be quantified in one way or another. These are called measurement points.
Each of the measuring points is assigned a number so that you have something to aim for. Again with the example from the webshop: The loading time of the website must be reduced by 2 % and the product selection must grow by 10 % during the coming accounting period, etc.
Overview of how the concepts are connected: An example from a webshop.
It is important to distinguish between KPIs and measurement points. Overall, a KPI shows whether an organization is on the right track in relation to the set goals, while the measuring points show why things are going well or poorly. A KPI therefore shows whether there is reason to act, while a measurement point shows what needs to be acted on.
The simple answer is that you don't. Therefore, it is important that you evaluate both KPIs and measurement points regularly and in this way learn what works. Examine whether the points you have identified really drive the business forward.
A target is a good servant but a bad master. There are countless examples of this.
The two examples show a mindless pursuit of a goal that is at best useless, at worst destructive to the company and employees. But the learning process that comes along when the company needs to find some really useful business goals and KPIs is an important part of developing a healthy and well-run organization. The required learning process can be seen as part of the philosophy behind Peter Senge's "Learning organization" and Kaplan and Norton's Balanced Scorecard method.
When you have your finished KPIs, which can of course be measured, reflect your organization's goals and are central to the company's success, you can use them in two ways: Of course to monitor your employees' performance: When do they meet the set goals and requirements? But perhaps more interesting; to drive your business forward by publishing and sharing your KPIs (in the canteen, in the meeting rooms, on the intranet, maybe even some of them on your website), you give your employees a clear reference point and motivate them to together reach your goals.
First, you insert the company name and, if applicable, the department or employee to whom these specific measurement points must apply.
Next, you insert your various business goals. Under each business objective, the relevant objectives (CSF) and key indicators (KPIs) are inserted. The numbering can be done in several different ways:
In the template, the numbering is chronological:
If you have several KPIs per CSF, a different numbering may be necessary. Eg.:
Likewise, you can also number measurement points with independent numbers or write which CSFs and/or KPIs they relate to.
ATTENTION! The same CSF/KPI can easily provide different measurement points for different departments or employees.
Page 2 of the template can be used to, at employee level, agree concrete and measurable goals for the next period. And therefore make it concrete and tangible, for the individual employee, what is expected.
Weight is used to show the employee which areas have the highest priority and is given as a percentage: So target 1 e.g. weights 50 %, target 2 weights 25 % etc. Combined all targets should give 100 %.
The template suggests that the employee's efforts are evaluated every six months. The need for evaluation is not the same in all companies and of course you do what you think is best. There is no definitive formula for "the perfect solution".
In the example, bonus points are awarded for goals achieved. In the nature of the matter, it is not relevant in all companies.
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