How do you know your business is performing?

Key Performance Indicators are the data and measures chosen 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 and indicators for company managers and external analysts and investors to judge the company, how it is currently performing relative to its market sector, 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 irritation with this trend was crystallised by a rant in no less a journal than “The Concrete Producer” some years ago, when even concrete producers felt moved to bemoan the sheer number, and contradictory nature, of the KPIs being used in their business, on this occasion in concrete quality control.  As James M Shilstone Jr. writing in that respected organ asserted, “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. We could not have put it better ourselves.

Morgan Clarke works with the leaders of global and multi-national companies in sectors as diverse as banking, financial services, food and beverages, energy, manufacturing, retail, medical technology, utilities, business services and more, this corporate ailment of excessive metrics – often contradictory – seems to have permeated 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 proposition are so popular, is that operational managers learn, often for the first time, how their operational decisions impact the bottom-line.  Or indeed other key business performance indicators like customer loyalty, employee engagement and sustainable new business growth.

During this year’s annual appraisal, one management tool enjoying a renaissance, still popular around the globe and still getting high satisfaction ratings, is Kaplan and Norton’s Balanced Scorecard which usually has performance indicators and measures in four related areas: Financial, Customer, Internal Processes and Learning.  With no more than four or five key performance indicators in each of these areas, this should provide the required focus, and real value to those executing the strategy, that the scorecard or similar dashboard can express – if clearly linked to strategic objectives and business goals.

If this blog has whetted your appetite, and you would like to find out more about how we can help to identify the Key Performance Indicators to drive your business forward in the right direction, or alternatively you would like to sharpen your existing KPIs, please call Simon Kelly on 07967 728377 or email [email protected].

Posted in Management and tagged , , .