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We seem to live in a world saturated with KPIs. Our
corporate rivers are overflowing with them drenching everything in numbers and
targets. KPIs stands for Key Performance Indicators and most companies and
government organization are either drowning in metrics and/or are using them so
badly that they are leading to un-intended behaviors.
The other week I wrote about the 75 KPIs every manager
needs to know. That list of metrics was intended as an overview of all the
‘good’ KPIs I see in use today. I thought I made it unmistakably clear in the
article that no-one should pick all 75, but some still didn’t get the message.
Anyhow, my suggestion was to learn about the 75 good ones and then select the
vital few that would be most relevant and meaningful to any given business.
With this post I want to follow on to say that there
are really only 4 KPIs that every manager needs to use. These four are the same
KPIs that come out of every workshop I run with executive from all over the
world, across all different types of industries. To get to them I create a
simple exercise and say to them: “You are running this business and want to
understand how well the business is performing. You now have to select KPIs for
the business and those metrics are the only management information you can use
to judge whether the business is doing well or not. The challenge is that you
have to agree on only 4 and together they should give you a complete picture.”
This, by the way, is a great exercise you can do in
your own company or with your own team and is one that sits in stark contrast
to the way KPIs are usually developed: Brainstorming what we could possibly
measure and ending up in a position where we measure everything that walks and
moves and nothing that matters!
Anyway, the four KPIs that always come out of these
workshops are:
- Customer Satisfaction,
- Internal Process Quality,
- Employee Satisfaction, and
- Financial Performance Index
Here are the reasons why these KPIs are picked time
and time again:
Customer Satisfaction: It’s simple, without customers your organization wouldn’t be here. Any
organization has customers it has to satisfy. For example: Apple, Inc. has
customers that buy their products, the FBI has customers (the American public)
whom they protects from terrorist and foreign intelligence threats, and an
internal IT or HR function has customers (their co-workers in the operational
departments) to whom they deliver services. Any business, government or not-for-profit
organization has to ensure it delivers to their customers.
Internal Process Quality: Companies need to make sure their services and products are to the
expected standards and that they optimize the way these products or services
are delivered. It doesn’t matter whether you are Apple, the FBI or a shared
services function, all of them have to ensure their processes are as efficient
and effective as possible and deliver the quality their customers expect.
Employee Satisfaction: Even though my last article was
about the elimination of human jobs through the use of artificial intelligence
and big data robots, we can safely say that employees are still the most
important ingredients in any business. We all know that companies don’t do well
if their employees are not happy and this again applies to all enterprises.
Financial Performance Index: Money matters to Apple as much as it matters to the FBI or a shared
services team. Apple needs to ensure it satisfies shareholders by delivering
turnover growth and healthy profits, the FBI has to demonstrate it delivers
value for money to the tax payer and the internal IT function has to ensure it
controls costs and generates efficiency savings.
So here we have it. The four KPIs every manager needs
to use. But how exactly do we know collect data on these? Ah, this brings me
back to my original article about the 75 KPIs. Apple might develop their
financial performance index by combining revenue growth with profit margins and
EBITDA. The internal services team might track customer satisfaction using the
Net Promoter Score. And the FBI might measure staff satisfaction using the
Staff Advocacy Score.
Some will have spotted that these four KPIs fit neatly
into the four perspectives of the Balanced Scorecard (BSC). The point I am
always making is that this means the BSC is a very intuitive framework – which
might explain why it is one of the most popular management tools in use today.
However, it suffers from the same problems as KPIs – most scorecards are
stuffed full with KPIs that are not relevant or meaningful.
So if you are seeking relevant and meaningful KPIs,
simply start with customer satisfaction, internal process quality, employee
satisfaction and financial performance.
As always, please share your views and let me know
what your thoughts are. Does this make sense? Do you agree or not?
How to Develop Key Performance Indicators (KPIs)
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