In the next three articles, we will review KPI best practices and the essential steps that organisations must take to see a return from their measurement efforts.
Understanding the role of KPIs
But firstly, what exactly is a ‘KPI’ – and why is it so important? A Key Performance Indicator is essentially a measure of organisational performance. A series of KPIs are usually chosen at a senior level to measure progress towards strategic objectives – for instance, linking to the annual business plan. KPIs can also be used to benchmark and measure ongoing movements against operational goals.
This means that, in themselves, KPIs have little value. But when connected to high-level organisational goals, and used to provide data that leaders need to make decisions and to communicate progress to employees, their role becomes vital to the organisation’s future success.
KPIs and leadership buy-in
The essential relationship between KPIs and strategic business objectives means that leaders must be prepared to buy-in at different stages:
1. At creation stage
The right KPIs must be chosen in order to provide meaningful data that demonstrates achievement (or otherwise) of strategic organisational goals. Leaders must be ready to either choose these KPIs themselves or delegate the task to senior functional staff who are well placed to pick out measures that relate the business plan to the function that they are responsible for. (Bear in mind that there can be different layers of KPIs as needed, for example, one high-level layer for the senior leadership team and then more local KPI sets for functional teams such as sales, finance and marketing.) Business leaders must be prepared to debate the choice of KPIs and sign them off as part of the business planning process.
2. At data capture stage and for decision making
Once the KPIs are agreed, leaders must visibly support their ongoing measurement and data submission to key meetings. KPI information is often prepared into a dashboard with graphs that easily show movements and changes and which flag up any particular areas of high performance of concern. Modern software packages can now automate elements of this otherwise arduous monthly task and integrate with existing business systems for enhanced organisational intelligence. Business leaders will demonstrate buy-in at this stage by interrogating KPI data, seeking out trends, absorbing accompanying narrative from functional leads and using the information provided within their regular leadership pack to make sound decisions for the future of the organisation. In this way, leaders can demonstrate that they lead with both hearts and minds – engaging their people on an emotional journey, but using hard data and evidence to make sound judgements and decisions which guide the organisation forward in the right direction.
3. At communication stage
One of the most vital roles of leadership is to communicate effectively with stakeholders. Within the KPI context, business leaders must show their buy-in by supporting regular, full and timely communication of KPIs across board member audiences, to employees and to other key identified stakeholders, such as strategic suppliers or JV partners who may receive ongoing progress on a limited and relevant number of KPIs. At this point, leaders will use KPI information, through the use of a good KPI software package, to demonstrate clearly where the business plan is being achieved and to flag up focus areas where further development is required. They can use KPIs as a means of celebrating success and for rewarding high performing staff. The evidence provided by regular KPI capture and trend analysis provides a valuable leadership tool that facilitates clear communication by providing rich data, linked intrinsically to the overarching business plan, and allowing leaders to talk intelligently and persuasively about the high-level issues that affect the organisation’s direction.
In summary, the right selection, management and communication of strategic KPIs provides leaders with the rich data that they need to check progress against the business plan, to make sound decisions and to communicate progress to employees and other stakeholders in a compelling, detailed way that demonstrates strong, effective and highly competent leadership.
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