Welcome back to our series on Key Performance Indicators, or KPIs. Last time we introduced the concept of KPIs and investigated their organisational context and application. This week we are going to move on to our first specific area of interest: the relationship between KPIs and strategic objectives.
KPIs and business objectives
What is a KPI objective? KPIs are used to monitor business-wide, strategic objectives and goals. This is vital to know because KPIs should never be used to monitor the performance of an individual. Yes, any employee’s own personal objectives should have a clear link to the business activity that underpins strategic direction. But their own behaviour and progress should be assessed using a Human Resources framework. This is usually supported by targets and other measures which are ideally linked to corporate values. These will be assessed using a process, typically driven by the strategic HR function.
In summary, the key points are:
- KPIs determine progress towards overarching strategic business goals and objectives, as well as repeated successes of recurring operational goals.
- A KPI in isolation has no intrinsic value because it must be linked to an objective to be useful.
- KPIs are typically managed using a framework such as the Balanced Scorecard and monitored using a linked software package such as Spider Impact which produces rich management dashboards for KPI reporting and interpretation.
- KPIs must be carefully set so that they have relevance at a functional and departmental level, whilst measuring the high-level strategic objective. The KPI set must be consistent across the organisation.
- KPIs and business metrics are not the same thing. The word ‘key’ is vital here. KPIs are linked to the truly vital and strategic objectives which set the business direction. They must be manageable in volume to allow appropriate focus. Business metrics, on the other hand, are numerous, owned locally by departments and used to track operational or functional progress.
- A KPI must be counted, compared, time-bound and objective. The comparator element means that the benchmark or comparison data is needed to contextualise and evidence progress or shortfalls towards the objective.
- Comparative thresholds are used with KPIs to define where KPI progress will be assessed as exceeding, on target or falling short of the desired outcome level. By setting the thresholds to monitor progress, flags can be set to alert managers to situations where objectives are not being achieved. This allows for rapid focus and remedial action.
The risk of a blame culture
We have talked about KPI measurement and the need to formalise this for timely and effective management decision making. So far so good! But many organisations make the mistake of responding in the wrong way to shortfalls in KPI performance and resort to finger-pointing and a blame culture.
Once this becomes embedded, the knock-on effects can be disastrous. Finger-pointing and blame lead to poor morale and poor performance. Attrition and staff turnover can increase and the organisation can experience a drain in experience and talent. Additionally, its brand equity can diminish as it gains a reputation for being a poor employer with a non-supportive working culture; something that concerns customers, suppliers and partners as much as potential employees.
Organisations must strive to create a culture of support, helpfulness and joint problem-solving. Leaders have a vital role to play in establishing this culture. They will set the tone and message of the entire organisation, using its corporate values to establish cultural norms and expectations around behaviours, values, working practices and the broader internal environment.
Create a supportive environment
Business leaders and their executive teams should integrate the earlier strategic business planning work to communicate expectations around business objectives and their KPIs within the context of the business mission and values. By doing so, they can communicate not only the ‘what’ of the organisation’s thrust, but the way in which this will be achieved – by adopting the right behaviours within a culture of support, communication, collaboration and mutual respect. Communication on a regular, open and two-way basis is key here, and those organisations that can achieve this will reap the benefits of a high-performance culture that continues to achieve and excel.
Remember, great organisations with global reputations have superb cultures as well as strong strategic visions and excellent delivery records. They are places at which talented individuals clamour to work and where productivity is incredibly high because of the company’s working culture. No amount of KPI setting can replace this fundamental need, and understanding the links between these elements offers all organisations the insights needed to succeed on all fronts for long-term success and competitive advantage.
Download our guide: How to Develop Meaningful KPIs