Commentary
Are KPIs Helping Or Hurting Your Business?
- by dave.b , Max Kalehoff , June 18, 2010
Key Performance Indicators are metrics that track progress in achieving organizational goals. KPIs typically are tied to objectives, which lead up to corporate goals and strategy. Effective KPIs are simple, easily reported, widely understood and meaningful. Interesting does not make a KPI.
Management teams consistently celebrate and pay lip service to the idea of KPIs, but they often fail to effectively establish and apply them. This failure sometimes results from unclear corporate strategy. KPI problems can also stem from a failure to apply the necessary discipline and investment in intelligence, analysis and reporting. Making matters worse, there is a common trap many managers fall into: reporting a litany of metrics that do little more than indicate that a lot of activities are going on in the organization.
In the end, ineffective KPIs become distractions and counterproductive efforts. They're not benign; they cause harm. The worst part is that many managers often don't realize it.
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That's where the KPI litmus test comes in. It's simple:
1. Define your corporate goals.
2. Define your key objectives tied to those
corporate goals.
3. Define your KPIs -- the metrics that indicate progress and achievement toward those objectives.
4. Finally, ask: Do your KPIs blatantly inform your decision to
continue or change course?
If your answer is yes, your KPIs are probably valid.
If the answer is no, it's time to go back to the drawing board.
KPI's, in and of themselves, are always necessary. It's when actions aren't taken based on the movement of KPI's that they become ineffective. It's not the KPI's fault, it's the organizational leaders. It's also important to not simply look at the KPI results. You must discern what the underlying factors are that drove those results and figure out how to capitalize off of positives, reverse the negatives and so forth. If you don't have KPI's, how can you succeed as a business?
I agree with this blog but it is not really about KPIs. Everyone agrees that you need ways to measure success and "KPI" just happens to be the consulting firm/MBA acronym of the moment for this basic business requirement.
This blog is about the quality of a company's articulation of its Mission, Objectives, Strategies and Tactics. I do so much work in this area that I coined my own acronym..."M.O.S.T."
Most companies rush to tactics and most executives lack the discipline and the tools to keep the distinctions between strategies and tactics clear in their own minds.
M.O.S.T is a document and a team of senior, dedicated stake holders who treat the document like the company's bible. If you have that in place, KPIs are easy to define, and very useful for keeping track of progress in a clinical and unemotional manner.
is essential that everyone is an organisation knows what their company’s key metrics are, what they mean and can see how their own activities contribute to their fulfillment. If everyone is on the same page and working towards the same clearly defined business metrics, then it is highly likely that the all-important financial metrics will also be achieved.
Most companies should have some kind of core KPI system in place to run their business on a monthly and annual basis (e.g.; xxx; xx) but KPIs are especially important if a company is considering a merger or acquisition or if it’s considering an outright sale and they may well need to adapt. The KPIs companies need to bear in mind to meet a potential investor or buyer’s tough scrutiny, include:-
1. Margin and Growth %
2. New business performance
3. Customer Satisfaction Scores
4. Customer churn/tenure
5. Staff performance/turnover
6. Number of awards
All these KPIs give information by providing an objective point of performance comparison between other companies. This can hurt a company that is not monitoring its KPIs or that chooses not to monitor the KPIs reported by its primary competitors.
Rose Lewis, Pembridge Partners LLP www.pembridge.net
Max,
As a fellow columnist I read almost everything anyone writes on Mediapost -- but I refuse to read your column today because your subject lines is exactly why so many clients and others outside of the online advertising industry continue to resent those in it.
Offering up an acronym (in a subject line no less) and assuming your readers no what it means is obnoxious and arrogant. You could have come up with anything else and still made your point but instead you chose something that would alienate many and ingratiate you to few....and yes, I know what a KPI is but that's not my point.
Start talking in a language more can understand and more people will be more interested in understanding our industry and how it uniquely compliments the umbrella world of marketing. Or you can continue to overuse acronyms to show everyone how much more you know than they do.
Ari
The old adage that "if you don't measure it, you can't improve it" still holds true. The one thing that many organizations fail to realize when going about the business of dutifully collecting KPIs is that they should be a living entity, adjusting and morphing as the business drivers and environment changes. Business drivers should be determining the data collected as KPIs; not the other way around.