By Mitchell Goozé
People ask me about KPIs all the time. KPIs, of course, are key performance indicators. And each of those three words is important in understanding what they should be for your company.
Let’s start with that middle word, performance. Measuring performance requires that you know what it is you’re trying to accomplish. And knowing that requires a framework that you and your people can work from. The framework I recommend starts with articulation of a goal or goals, best set by the owners of the company. In a privately held company, this can be just one person. In a partnership, this will require agreement by the partners, and, in a multi-shareholder company, this is the purview of the board of directors.
In every event, a goal must be articulated. In the event you have more than one goal, it is imperative that the goals not be mutually exclusive. That is, if you accomplish one of the goals, it is, by definition, then impossible to accomplish the other.
Once you have your goal(s) set, it is incumbent on the management team to develop a strategy to accomplish those goals within the environment your company operates. That environment includes those things you can control, such as your capabilities, and those things you cannot control, such as the actions of your competitors, the economy, regulations, and so on. Strategy development is the purview of the executive team.
Once a strategy is created, you can then identify critical success factors (CSFs) – which are necessary and sufficient so that if they’re accomplished, then your strategy will be executed and therefore your goal will be achieved. Identifying these CSFs is vitally important to achieving your goal because they are the things you must do.
To implement these CSFs, you will also identify those key activities (KAs) that are required to assure the critical success factors are accomplished. Each key activity should be tied to one or more of the critical success factors so there is a causal link between them. Thus, if the key activities are performed, the critical success factors are accomplished, the strategy is executed and the goal is achieved.
Finally, key performance indicators (KPIs) are your tool for monitoring the key activities.
The second question asked about KPIs is what tools you can use to measure them. There’s a lot of talk about dashboards and scorecards, and the two terms are often used interchangeably. I think not. A scorecard tells you how the game turned out. A dashboard is a real-time indicator of what is going on. So, if KPIs are your method for monitoring the key activities, then your dashboard should consist of your method for observing those KPIs.
Dashboards can be web-based and highly sophisticated, and they can be built using simple tools like Excel. The important thing is that they are reflective of your KPIs in “real time” with sufficient information so you know if action needs to be taken to keep your company on track to achieve its goal(s).
A recognized expert in marketing, innovation and leadership, strategic positioning, and customer relationships, Mitch Goozé is an experienced general manager and leader with operating experience in the high-technology and consumer products industries. Mr. Goozé has served as a member of the Board of Directors of several major private companies and is a Certified Speaking Professional (CSP) who’s been named Marketing Resource of the Year by Vistage International. Contact him at firstname.lastname@example.org.
Originally published: Feb 14, 2012