“Here are your KPIs for 2014”.
Hands up if you were inspired by that statement. Mmmm. I thought not.
Nevertheless, we do need them. Key Performance Indicators are the measures used to determine how your business is performing in relation to its strategic objectives and business goals. However the term ‘KPI’ must be one of the most over-used and over-worked in business and management. It should mean those few significant measures for company managers and external analysts and investors to judge the industry/company, how it is performing and how it is likely to perform over the medium or long term.
Unfortunately, somewhere along the line KPIs have become wrapped up with ‘metrics’ and suddenly everything that can be measured has become a KPI. My growing irritation with this trend was crystalized last year by a rant in no less a journal than The Concrete Producer, when even concrete producers felt moved to bemoan the sheer number, and contradictory nature, of the KPIs being used in business, on this occasion in concrete quality control. As James M Shilstone Jr. of that respected organ rightly asserts, “KPIs can be a valuable tool in the hands of someone who understands the significance and limitations of each number. In the wrong hands a misunderstood KPI can lead to confusion and improper action or goals. Like any other tool, a KPI is only useful in the hands of a person who knows how to use it.”
Exactly. Thank you James. I could not have put it better myself. Working as we do at Morgan Clarke, with the leaders of global and multi-national companies in sectors as diverse as banking, financial services, food and beverages, energy, manufacturing, retail, medical, utilities, business services and more, this corporate ailment of excessive quantities of metrics – often contradictory – seems to permeate all layers of corporate life.
In practice, the term KPI is too loosely defined and very much overused. For many it describes any form of measurement data, or performance metrics used to measure business performance. Huge quantities of data are collected and reported upon, whilst operational managers scratch their heads and wonder what to do with it – or just ignore it! One reason that the Commercial Acumen and Business Simulation elements of our leadership development work with clients is so popular with participants, is that operational managers can learn, often for the first time, how their operational decisions can or do impact the bottom-line, or other key business performance indicators like customer loyalty, employee engagement and sustainable growth.
One management tool that is still popular around the globe with blue chip clients, and gets high satisfaction ratings, is Kaplan and Norton’s Balanced Scorecard which usually has performance measures in four related areas: Financial, Customer, Internal processes and Learning. When there are no more than four or five key performance indicators in each of these areas, they should provide the required focus, and real value to those executing the strategy that the scorecard or dashboard expresses – if clearly linked to strategic objectives and business goals.
Ronnie Epstein of Tectona Partnership a long-time collaborator with Morgan Clarke, and a respected UK consultancy providing business advice and CFO support to SMEs, says KPIs are important in owner-managed businesses too, for a host of reasons, and he emphasizes three top drivers:
- To learn from and therefore improve performance
- To satisfy external reporting and compliance requirements
- Creating the right culture; to monitor and guide peoples’ behaviour
If this blog has whetted your appetite, and you would like to find out more about how Key Performance Indicators can help to drive your business forward in the right direction, or you would like to sharpen your existing KPIs, please call Simon Kelly on 07967 728377 or email him at [email protected].