When it comes to performance management, the old adage is true: you get what you measure.
Though it sounds simple enough, when it comes to performance management, most organizations struggle with defining which metrics to measure, how to measure them and why to measure them in the first place.
Simply put, the right performance metrics to measure and monitor are those that directly align with your company’s organization strategies. To determine the right measures of performance, those intimately involved in management and operations need to answer these questions: “What are our strategic business strategies or goals?”, “What are our specific measures of success?”, and “What actions or behaviors do we want to enforce based on these metrics?” There usually isn’t a straightforward answer and oftentimes a workshop is needed to build consensus and a meaningful view of performance.
Once your leadership team has defined the metrics to help monitor your performance, the next step is defining which of those metrics are KPIs, or Key Performance Indicators. KPIs are a small subset of metrics that are determined to have the greatest impact on your business as a whole, or a specific business objective. However, different functional areas of your business may have different KPIs. As an example, while revenue may be a KPI at the enterprise level, your marketing department may monitor web traffic scores or social sentiment as departmental KPIs.
Here are a few other points to keep in mind when it comes to performance management and monitoring:
Remember that all KPIs are metrics, but not all metrics are KPIs. KPIs are those metrics that have the largest and clearest impact your company performance or alignment to a specific goal. There should be no more than a total of 8-12 KPIs for your business.
Data Visualization tools, such as rich dashboards and scorecards are invaluable to performance monitoring. Visually appealing dashboards and scorecards use data visualization techniques to quickly convey simple messages about performance to your business users, providing the at-a-glance feedback (good, bad, average), which your executives crave.
Scorecards are essential visual tools that lend immediate focus to the progression towards organizational goals through the use of KPIs defined. Scorecards are typically used at the enterprise level, but may be broken down by division, function, etc. to better help your executives monitor performance in their areas.
Balanced scorecards combine both financial and non-financial metrics to provide a holistic viewpoint of performance. Typically, business processes, employee growth and customer satisfaction are combined with financials to provide a complete perspective on your business or functional area.
The KPIs defined will vary depending on a company’s individual goals, as well as their industry characteristics. Below are common KPIs for companies within the Manufacturing, Healthcare, and Retail industries.