Complementing Key Indicators: Knowledge, Preparation and Use.
Key Performance Indicators (KPIs) are important and useful. As a tool, they are often presented as scorecards and dashboards which provide data on a company’s measurable goals.
Strong KPIs offer performance management metrics linked to an organization’s short-term objectives and long-term strategy. Effective KPIs are developed with an organizations layers in sight. One layer captures overall business performance against previously defined thresholds and benchmarks. Thresholds and benchmarks are a company’s or organization’s vision translated into measurable operational targets. The second layer for KPI development centers more on execution and the segments of business or teams responsible for meeting defined objectives related to specific targets. At this level, the reporting framework is determined by uniquely aggregated and partitioned performance indicators identified as “key” and which have been aligned with the global business approach and group or segment level performance. A final layer of KPI is outcomes specific and measures impact. As the first layer captures metrics driving the business, and the second layer is based more on productivity and results, this third layer determines whether a business or organization has moved the needle in a particular industry or space.
A recurring challenge with KPIs is that they can become dormant over time. The danger of diminishing value in KPIs comes from information overload, repeated analytics, repetitive presentations and redundant reporting.
Managers and team members can “fall asleep at the wheel” if flooded by incongruent and unreliable data, repetitious figures, and meaningless thresholds. Most importantly, KPI effectiveness is derailed by a lack of understanding of the overall business strategy by managers and teams, poor preparation of what “to do” with the data in KPIs, and loss of focus. To prevent the ineffectual KPI, at Capgenus we complement KPI preparation with KPUs.
Active Learning: Businesses and organizations are constantly at risk of information overload under the guise of productivity. Managers and team members must draw from facts in KPIs and subsequently become more knowledgeable preparing them to act.
Knowledge of Strategy: KPIs must be clearly tied to strategy, AND consistently communicated to managers and teams. Knowing KPI relevance and tactics essential for implementation will elevate strategies and their potential to succeed.
How to Cultivate:
Ask the Right Questions: Questions must be direct and advance problem solving and analysis of KPI definitions and content. Active discussion demonstrates comprehension of strategy and capabilities to retrieve standards of measurement.
Consistently Communicate: Erratic and disjointed communication of strategy spurs confusion and disengagement. Consistent communication cultivates trust in the strategy and assurance of its purpose.
Capacity to Act: Data is static and only moves when managers and teams are prepared to do something with it. Executing strategy based on data requires having the resources and capabilities to turn information into action.
Current & Balanced Scope: Convincing KPIs measure short and long-term strategy. Balancing individual and group-level accountabilities across an organization keep targets and impact in scope.
How to Cultivate:
Make Resources Available: Execution depends on resources aligned with performance goals. Effective organizations allocate resources efficiently to drive results and outcomes.
Modify Thresholds & Benchmarks: Comparative thresholds and benchmarking against past performance and industry scorecards establish competitive trends. KPIs evolve over time and require modification of upper and lower limits to maintain responsiveness to data.
Focused Implementation: Trends carry their own momentum. Unfocused organizations are vulnerable to stumbling through implementations wasting time and resources weakening strategic outlays.
Advanced Competitive Advantage: Success informs innovation. KPIs measure the progress of strategic aims advancing competitive advantage.
How to Cultivate:
Streamline Decision-Making: Set standards, define expectations and eliminate overly restrictive language and procedures. Encourage transparency with appropriate checks and balances.
Constantly Engage: Create open pathways of communication. Foster culture which supports strategy, and acknowledges and reward initiative.