Creating Meaningful KPIs – Or to put it another way; ‘give your company a fighting chance to successfully implement its strategy’
This might seem a bit glib, but the reality is successful strategy is not determined by definition alone. Some of the greatest strategies have been defined carefully and with elaborate thought. They have been masterpieces. They could not be faulted other than they were left on a head-office shelf and never implemented.
Most companies and organisations are good at defining a strategy; very few are good at successfully implementing one. Have you considered the follow when looking at your KPIs:
- Creating Objectives
- Describing Results
- Identifying Measures
- Defining Thresholds
- Uploading to a System
- Interpreting Results
- Taking Action
All of these activities need to be considered. When a strategy has been defined, one of the most troublesome tasks a company or organisation faces is the immediate next stage: developing meaningful objectives and their associated key performance indicators (KPIs). This task has to be structured and has to be treated as a project in its own right. Without this follow-on activity, a strategy will never be executed successfully.
In business, government and non-profit organisations we measure a multitude of things. We hope this will help in the process of improving our business. Unfortunately, this is not often the case. Where we think we have a decent set of KPIs, actually we have a hotchpotch of tasks, objectives and projects with a few badly described metrics.
A Key Performance Indicator is something that can be counted and compared; it provides evidence of the degree to which an objective is being attained over a specified time.
The definition above includes a set of words that need further explanation to ensure the statement is fully understood:
Counted: This may seem a little trite, however, counted means that a quantity can be assigned. A number or value. It does not mean a percentage achievement. One of the most frequent mistakes in setting performance measures is to create a project and assess its success through how much work has been done. Just because an e-mail marketing campaign has been active for 3 weeks out of four does not mean it has been a success. Success is dependent on the outcome not the activity.
Compared: A number or value may be interesting but it only becomes useful when it is compared to what is optimal, acceptable or unacceptable. Every performance measure must have a comparator or benchmark. Using an industry benchmark gives an objective quality to the comparator, objectivity is not required, but it is desirable.
Evidence: The evidence will fall out by ‘counting’ and ‘comparing’ correctly. It is important to strive for a measure that will be observed in the same way by all stakeholders. The evidence should be clear and have specific meaning.
Objective: A performance measure only has significance if it is contributing to an objective. If there is no objective, why is it being measured in the first place? This does not mean we should ignore all operational measures; they still need to be in place – but even as sub-measures they should still contribute to the objective.
Specified Time: Everything is time bound; progress towards meeting an objective and therefore a strategy must be measured over a specified period of time.
Any methodology should guide you through the process of developing clear objectives and KPIs to support your company strategy. It should ensure performance KPIs have targets and owners and can provide the evidence that objectives are being met, (or not!)
Once KPIs have been defined, they need to be presented in a way that will allow quick and easy interpretation. Finally, the information needs to be acted upon in such a way that it will move you closer to your objectives and ultimately to your strategy.