Management & Organization

KPI: You can't win without a goal


(Image: Eva Ekeblad, on Flickr.com)

A leader's job is to have a clear idea of the big picture. You must clarify the company’s vision and mission and know in which direction the company has to move. In a complex company where (almost) everything is measurable and where many different aspects of your business can influence your overall mission, this is not an easy task.

Luckily help is near, because this is what performance management and KPI reporting helps you do. This method helps you find out whether something is a success or a failure, and, if your KPI’s are set up the right way, they'll show you where to take action to correct or improve the situation.

What is KPI?

KPI stands for Key Performance Indicator and is an performance and target measurement that informs you of the direction and pace company’s strategic goals. KPI’s are different according to the organizations that set them up:

  • For a company one KPI maybe the percentage of income coming from recurring customers.

  • A school might focus its KPI’s on the percentage of students who complete their education.

  • A customer service department might have a KPI that, like the rest of the company’s KPI’s, focusses on the amount of calls that are answered within a minute.

  • A KPI for a public organization could be the amount of citizens who are being serviced in a year.

Regardless of which KPI’s you choose, they must reflect the organization’s goals, be crucial to the organization’s success and be measurable. KPI’s are often long-term, and the definition of what they are and how they're being measured rarely change. The goals of any single KPI can however change as the organization’s goals change or as the organization approaches a goal.

How to find the company’s KPI’s

Demands for KPI

  • They must reflect the organization’s business goals

  • They must be measurable

  • They must be crucial to the company’s success

Your KPI’s evolves from the company’s mission and vision. With a tangible mission at hand you are ready for the next phase: Identifying your business goals.

Based on the mission you must identify some concrete and realistic business goals. Which direction do you want to go in the next year? You may for instance want to increase the revenue, strengthen your brand, increase customer loyalty or optimize internal processes.

To achieve any goal there are probably several areas you can address. For example, a web shop, that wants to increase its revenue, can work on improving the visitors convertion rate or increase the average order size. These effort-areas are called your specific objectives. The specific goals are also often called CSF or Critical Success Factors. A term that stress the importance of your specific goals (CSF) having a crucial meaning to the success of your company.

At least one specific goal is connected with every KPI, but there can be several. Be careful, however, that you do not have so many that you lose track. For every KPI you identify, which areas influence the convertion rate and is able to be measured in some way. These are called measuring points.

Each measuring points is given a number, so you have something to aim for. Using the example from the web shop: The amount of loading time of the webpage is reduced by 2 % and the selection of products must grow 10 % during the next year, etc.

 

View of how the terms are connected: An example from a web shop.

It's important to distinguish between KPI’s and measuring points. A KPI generally shows whether a company is on its way according to the proposed goals, while the measuring points shows why this is going good or bad. A KPI thus shows if there's cause for action, while the measuring points shows where to act.

How do you know, if you've identified the right KPI’s and measuring points?

The simple answer is that you don't. This is why it's important to evaluate both KPI’s and measuring points regularly and figure out what works. Examine if the points you have identified really drives the business forward.

A goal is a good servant but a poor master. There are countless examples of this.

  • A bus company neglects to pick up passengers on a specific route, because it delayed the bus.

  • A hotel could'nt print nametags fast enough, so they supplied tags that were pre-printed. That is why “Mary” walked around with “Susan” written on her uniform for weeks.

The two examples show a thoughtless pursue of a goal that, at best is fruitless, at worst disruptive for both company and employees. But the learning process that follows, when a company has to find useable business goals and KPI’s, is an important part of the development of a healthy and well-run organization. The required learning process can be seen as a part of the philosophy behind Peter Senge’s "learning organization” and Kaplan and Norton’s Balanced Scorecard method.

When you have your finished KPI’s, which are, of course, measurable, reflect the goals of your company and are crucial to the company’s success, you can use them in two ways: Of course for monitoring your employee's performance: Are they reaching the proposed goals and demands? But perhaps even more interesting; for driving your company forwards by announcing and sharing your KPI’s (in the canteen, in the meeting rooms, on the intranet, maybe even some of them on your webpage), and thereby providing your employees with a clear point of reference and motivate them to reach your goals together.