|
|
Performance Management is the process of planning, organizing, and controlling overall organizational performances. It is about creating effective system which will deliver the required results and achieve the overall strategic objectives. The performance measurement system is part of the overall performance management and should support the overall strategy. Simply “benchmarking” competitors’ KPIs in order to develop your own performance measurement system is not going to work very well. You should start working by considering your own business strategy. Developing effective performance measurement approach requires careful strategic assessment and judgment.
Use the following simple and effective approach to identify your KPIs and develop successful performance measurement system which will help you manage your business performances: |
 |
The first and most important step is Defining Your Strategic Objectives. Make a short list of what you are trying to achieve at the overall strategic level. If you are working on developing corporate performance measurement system you should focus on your corporate strategy. If you are working on developing “local” performance measurement system such as regional or department performance measurement system – focus on your “local” strategic objectives. |
 |
| Strategic Metrics |
The second step in the process is Defining Your Strategic Metrics. For each of the strategic objectives identified in the previous step make a list of the most relevant performance metrics. For example, if one of your strategic objectives is to increase overall sales by 15% then your potential performance metrics would be focused on new sales, new products, new customers, sales growth with current customers, etc. Next you would like to see these metrics at different “local levels” such as per region, per product, per new product, etc. If one of your objectives is to cut your operational costs by 10% then your potential performance metrics would be focused on your critical business process drivers such as deliveries, production efficiency, product quality, production scheduling, etc. |
|
| Performance Targets |
For each of the strategic metrics identified in the previous step define target performance levels. For example, how much sales growth we need in Region A, how many new customers we need for Product X, What is the minimum price we should charge for Service Z, etc. |
| Actual Performances |
After you finish the previous three steps you can start measuring your actual performances. Your performance management system is in place and your actual performance results are relevant and they make sense. You are able to measure your business performances. You are able to identify what are the critical areas for improvement by comparing your actual performances with your target performances. |
| TIP: Balance your metrics |
There are different approaches to categorize business performance metrics. One of them is by business function such as sales, marketing, purchasing, finance, etc. However, the following approach can be used by any business function and group of metrics and helps the decision makers look at the big picture and balance the performance measurement system: |
 |
| Business Input |
Human resources, capital resources, purchasing efficiency, COGS, ordering, etc. |
| Business Process |
| Investments, training, technology, product development, critical process improvements, productivity, safety, capacity utilization, etc. |
| Business Output |
Products sold, new customers, new products, new revenue, ontime delivery, etc. |
| Business Outcome (your business model bottomline) |
Net profit, gross margin, brand recognition, market share, growth, customer satisfaction, stock price, etc |
|
|
|
|
