Organisations big or small, in their infancy stage or 50+ years old are all about taking multiple decisions every day. As a start-up organisation, the founders follow their instincts more than they follow data. However, as data begins to build up, so does its power to help you do the right thing. Eventually, the speed to react, growth and profitability of your organisation boils down to what you consider are its key success factors and how much you track these factors while you continue to innovate.
Figuring out the key growth parameters or the key performance indicator (KPI) is one of the most important activities for any entrepreneur. The sooner you do that, the better your organisation will be and the faster you will be able to accelerate it.
Top Management, The Board, Other Key Stakeholders (such as Sales Managers, Operations Managers, HR Managers etc.) should use a few but selected and critical key performance indicators (KPI’s) to reflect the overall organisations and departmental success.
KPI’s improve strategy execution by aligning business activities and individual actions with strategic objectives. Well-designed KPI’s can provide a means for Management and the Board to monitor core activities of the organisation rather than simply outcome measures of financial success. Integration of financial and non-financial KPI’s definitely contribute to a greater focus on long-term success rather than short-term financial performance.
Generally, KPI’s are based on the Cash Flow Statement, Profit & Loss Account and the Balance Sheet but also report on sales, margins and customer and product portfolios in a product contribution matrix KPI report and a KPI on COGS and direct costs which are also multidimensional in nature and give dimensions of inventory holding costs and suppliers’ costs as well as capacity availability. Non-financial KPI’s are being used to assess activities seen as important to the achievement of strategic objectives. Typical non-financial KPI’s include measures relating to equipment efficiency (OEE’s), quality, downtime, employees, cycle-times etc. All these KPI’s ultimately contribute to the organisations success.
Our advice to you is:
Set only those KPI which genuinely support your strategy,
Differentiate your organisations KPI for different users,
The KPI’s should release value to the organisation and to users. KPI’s are a double-edged sword – track the wrong ones, and mess your organisation,
Do not over collect data and measure too many things. Too many KPI’s will lead to confusion rather than clarity,
Keep the tracking period as short you possibly can. The time periods can vary from organisation to organisation and could range from hourly KPI to weekly KPI,
Make the KPI visible to all the relevant people – top to bottom without exceptions.
Avoid focusing solely on quantitative measures as qualitative assessments also provide valuable information.
Once every six months look back, reflect and get feedback on the KPI’s and whether some need deletion as they may not be effective KPI’s or some need to be added.
We can help you develop KPI’s as part of your overall management process and their supporting projects or initiatives. The sooner you identify the KPI that matter, the better it will be for your organisation and the easier it will be for management and growth.
We will base our development on the following:
Your organisations value drivers and core activities,
Which KPI’s you need most,
What performance questions you need answered,
What mix of financial and non-financial measures you need,
What customer, human capital, operating, supply chain or pipeline measures you need to monitor,
What other key measures are important drivers of your organisation,
Are there leading indicators that can be develop from the currently available data?
Can you collect meaningful data in a cost-effective manner for each of the desired measures?
Are your existing management information systems adequate to support the collection, analysis and reporting process?