80% of professionals state that using KPIs has a positive impact on measuring their organization's performance (The KPI Institute, State of Performance Improvement and KPIs 2016).
67% of professionals consider Performance Measurement and KPIs a top priority for further improvement (The KPI Institute, State of Performance Improvement and KPIs 2016).
55% of professionals reveal a high confidence level in selected KPIs' ability to accurately reflect the achievement of desired outcomes (The KPI Institute, State of Performance Improvement and KPIs 2016).
Only 39% of professionals claim to extensively engage their key stakeholders in selecting KPIs for the organization. (The KPI Institute, State of Performance Improvement and KPIs 2016).
A mere 37% of professionals believe KPI targets create a motivating environment for the employees within their organization (The KPI Institute, State of Performance Improvement and KPIs, 2016).
38% of professionals appreciate a moderate level of transparency regarding employees' organizational and departmental performance results. (The KPI Institute, State of Performance Improvement and KPIs, 2016).
45 % of professionals claim low to moderate levels of alignment between organizational strategy and departmental objectives and initiatives (The KPI Institute, State of Performance Improvement and KPIs, 2016).
59% of professionals claim low to moderate levels of alignment between organizational strategy and employee performance plans (The KPI Institute, State of Performance Improvement and KPIs, 2016).
KPI data gathering, selection, and target setting are believed to be the most challenging aspects of performance measurement in active organizations worldwide (The KPI Institute, State of Performance Improvement and KPIs 2016).
Building and nurturing a performance culture is appreciated as the most sensible topic associated with performance. (The KPI Institute, State of Performance Improvement and KPIs, 2016).
Decision-driven organizations will delve into performance measurement practices to see their strategy carried forward. When executing strategy, effective performance measurement ensures that goals are achieved and stakeholder expectations are met.
A well-designed performance measurement system thereby ensures that such demands are successfully addressed. However, it is the design of the performance measurement system itself that poses the greatest challenges in measuring organizations' performance nowadays. To more than many organizations, performance measurement is frequently about finding the one measurable expression that fits all-purpose decision-making. To us, however, performance measurement is about structure and clarity. That is why we have discovered multiple expressions that suit our measurement purposes.
METRIC
It has its roots in the word “metron,” which was used in ancient Greece to refer to measurement. Metrics refer to something we can measure, a value, or a quantity: # Air temperature, # Air quality, # Water depth, # Height, # Weight, or # Employees. When metrics reflect the achievement of a desired state, they become Key Performance Indicators (KPIs). Often, metrics represent the subordinated measures used for calculating a KPI.
Key Performance Indicator (KPI)
KPI is a measurable expression for achieving a desired level of results in an area relevant to the evaluated entity’s activity. It makes objectives quantifiable, providing visibility into the performance of individuals, teams, departments, and organizations and enabling decision-makers to achieve the desired outcomes.
Key Risk Indicator (KRI)
A metric that provides an early warning regarding an increased risk exposure in a particular area of operations: for example, a high level of % Clients experiencing financial difficulties can indicate the risk of being unable to collect all debts and will negatively impact $ Write-off accounts. By monitoring KRIs, managers can take a proactive approach to risk management by preventing incidents or diminishing their impact when they occur.
However important it may be to have deciphered the lock on performance measurement tools such as performance indicators or the Balanced Scorecard, it is never as consequential as cracking out the mystery of how these tools work together to accurately reflect performance and enable effective decision-making.
Performance Scorecard
It draws together the most relevant KPIs selected for the organization and groups them under strategic objectives. The concept has been remarkably transformed since the early 1990s when Kaplan and Norton first delivered it to the public. However, it has taken us some time to understand that the most crucial aspect of this scorecard is not that it is balanced but that it provides just the proper structure to cluster and use KPIs in a standardized manner.
Performance Dashboard
Visual dynamic tools are used to quickly grasp the pulse of the organization's day-to-day operations and take action based on KPI results. The benefit of the dashboard is that it invariably complements the scorecard by monitoring KPI data on a more granular level, with direct insight into operations' efficiency and effectiveness.
KPI Documentation Form
The KPI Documentation Form is a standardized template that structures the most relevant information associated with a specific KPI. The most important fields of a documentation form are the KPI name, Definition, Calculation formula, and Target. Suppose the Performance Scorecard manages to put the most relevant KPIs together. In that case, the KPI Documentation Form ensures that the reason for those KPIs being included in the organization's scorecard is fully comprehended. The KPI documentation form is efficient in terms of knowledge management and communication. It enables consistency in collecting data for KPIs monitored through the Performance Scorecard.
Owning the correct performance measurement tools means implementing a successful performance measurement system halfway through. For the performance measurement system to work, an integrated approach toward performance measurement for strategy execution is rendered. In this respect, the main principles of integration are stated hereon:
Cascading
A successful performance measurement system will cascade down the organization. This will ensure that the organizational strategy is disseminated across all organizational levels. Cascading is a valuable technique that secures permanent links between KPIs and strategy.
Alignment
The most definitive and conclusive step in implementing a successful performance measurement system within the organization. More than many organizations believe that performance measurement is about owning the right tools and not fully understanding their purpose. KPIs, performance scorecards, performance dashboards, and even KPI documentation forms are all designed and implemented for alignment, which is the commonly understood and accepted effort of achieving organizational goals.
Even with the correct performance measurement tools and a fully integrated approach to strategy execution, success is still not guaranteed. Facing a continuously evolving and ever-changing external environment, an organization can only persist in shaping and refining its internal capabilities to overcome the challenges that may be raised by implementing a performance measurement system.
Some success factors cannot be easily measured – some aspects of an organization's performance, such as innovation or adaptability, cannot be measured directly. Organizations should rely on their self-built capabilities and expertise to incorporate key success factors and value drivers into their performance measures.
Faulty implementation can lead to negative employee behaviors. One reason performance measurement systems are often ineffective is negative employee behaviors and a lack of commitment to supporting the organization's strategic vision. This can be the aftereffect of misalignment or faulty target setting and can easily lead to damaging reactions, reluctance, and disengagement.
Resistance to change can come from the system conflicting with the organizational culture – the organizational culture can either facilitate or hinder the implementation of the performance measurement system. Resistance to change can surface in organizational environments dominated by mismanagement and nepotism. An organization that lacks transparency and appreciation for individual contribution will most likely fail to succeed in the implementation of its performance measurement system.
A long, time-consuming implementation process can cause dissolution – the process of implementing a performance measurement system can seem overwhelming. A systematic approach facilitated by structured performance measurement tools and continuous communication can help prevent distress and dissolution.
KPI Selection
For a relevant KPI selection, it is essential to start the process by identifying what drives the most value for the business and where resources are most worth investing. Each organization operates in a different environment with different guiding principles. Hence, the KPIs used need to reflect the specifics of each organization first and industry/functional area characteristics second. Ensure regular review and recalibration of KPIs to ensure relevancy.
KPI Documentation
The KPI documentation process is a comprehensive endeavor involving research, outline, and analysis. A standardized documentation form aggregates all relevant information concerning measuring a KPI and sets the basis for a rigorous and reliable data collection and reporting process. KPI documentation forms ensure a standardized approach to working with KPIs and contribute to building an organizational KPI library that is a valuable source of knowledge in performance measurement. The value added by using KPI documentation forms relates to clarifying the means and purpose of KPI measurement. Moreover, it ensures accountability by setting data owners and custodians for each KPI.
Target Setting
The implications of inadequate target-setting are immeasurable. Easy targets cannot be incentivized enough to motivate performance. Stretch targets, or those pushing the boundaries on what can realistically be achieved, can reach such a high level of demotivation that they negatively impact employee retention. Targets for control, in many instances, result in a dangerous combination of human greed and mechanical behavior. Inappropriate targets can ultimately harm customers and generate risks. To avoid tunnel behavior, lack of ethics, or risky decisions, it is essential to conduct an efficient target-setting process based on historical analysis and benchmarking, decomposing long-term targets into short-term targets, using thresholds to relieve the pressure of unilateral results, and cascading to ensure alignment.
Data Gathering
As the decision-making process is significantly impacted by the performance data furnished in monthly reports, providing unreliable information might severely damage the organization. An effective data-gathering process will correctly identify data custodians and capitalize on their expertise to address data-gathering challenges. A data-gathering process map will provide data custodians with a more transparent data-collection process and clear data availability deadlines. Periodic audits of the data-gathering process identify critical issues interfering with the quality of the data produced, while automated processes improve both the accuracy of data and its availability in due time.
Data Visualization
Data visualization adds value to the performance reporting process when it communicates the data elegantly and comprehensively. Proficient data visualization improves the performance reporting process by optimizing the time required for data analysis and helping the user gain valuable insight into the decision-making process.
KPI Governance
A well-defined, reliable performance measurement system must be owned, governed, and supported. Involving key stakeholders in the development and implementation of the system promotes a sense of ownership, and teams and individuals are more likely to accept KPI targets and work towards their achievement.
