KPIs and business analytics should be a key component in your business strategy. Individual and team performance should align vertically with your organization-wide goals. Through growth mindset and continuous improvement, your culture should reflect. Cross-departmental collaboration helps reveal activities that drive performance.
Successful businesses leverage evidenced-based information. They link key performance measures and action to strategy. Team members see how their actions drive long-term performance, beyond short-term financial results. The outcome: Higher-levels of employee engagement, motivation, and performance.
What Do KPIs Do?
Key performance indicators (KPIs) measure success and progress towards specific goals. Balanced scorecards and strategy maps paint the picture, tell the story. The purpose of KPIs is to measure and monitor progress towards strategic objective targets. Strategy maps communicate. Dashboards enable senior management, the board, and other key stakeholders to focus and prioritize on critical metrics.
Financial KPIs report on income statement and balance sheet results. Ratios and metrics enable “apples to apples” comparisons in benchmarking, whether internal or external. Gross and net profit margin, operational cash flow, inventory turnover, EBITDA (earnings before interest, taxes, depreciation, and amortization), and ROA (return on assets) to name a few.
Non-financial KPIs measure activities essential to driving financial performance and the overall strategic direction of the organization. As seen in the balanced scorecard approach, non-financial KPIs typically include measures relating to customer relationships, employees, and operations.
Should KPIs be Limited to Financial?
KPIs should not be limited to financials. Your team has insight into which non-financial performance measures such as customer satisfaction and net promoter score drive financial performance.
Quantitative and qualitative, leading and lagging, input and output, short- and long-term are all important measures. A key is identifying those that are relevant to your business.
Visual dashboards equip top management with resources. Providing a lens and pulse of the overall organization. As questions arise, effective dashboards enable them to drill-down into the underlying data. Structured data is important, yet most data is unstructured. The latter opens unlimited possibilities for growth and improvement. Untapped knowledge waiting to be leveraged through business analytics.
Benefits of KPIs
An overall goal for every business is vertically aligning business units and teams with organization-wide strategy and mission. Effective KPIs enable boards and senior management to monitor activities that directly impact the business. Integrating both financial and non-financial metrics broadens the lens, painting a true picture of both short- and long-term.
KPI Implementation Considerations
When implementing a KPI strategy, it’s important to identify what is relevant to your business. Performance measures should reflect your organization’s key drivers. Measures and drivers that align vertically with your overall mission, strategy, and organization goals. Consistency in reporting as well as identifying a few key metrics. Too many metrics is burdensome and dilutes.
KPI Implementation Question Considerations
- What do we currently monitor?
- What should we begin monitoring?
- What resources do we currently have to collect data with the goal of turning into meaningful information?
- Can our accounting and management information systems collect, compile, and report?
- What performance measurement questions do we need to answer?
- What are our key activity drivers?
KPI implementation, when done correctly, elevates your business to new levels. KPIs should be based on key and strategic value drivers. Integrate both financial and non-financial metrics into your culture blended with growth mindset and continuous improvement. Keep the number of metrics to a manageable level focusing on those that drive positive action.