Many organizations track their key performance indicators (KPIs) using a balanced scorecard approach. The collected feedback gives high-level leaders a way of monitoring the total health of an organization on a regular basis.
Typically, these KPIs are a vital few metrics in each category of customers, financial performance, internal processes, and employees with specific measures aligned with the organization’s overall strategy. The balanced scorecard assigns a green, yellow, or red assessment to each KPI based on whether that item is okay, borderline, or in trouble.
The timing for measuring KPIs varies depending on how the organization will use the data, which parameters they monitor, as well as how easily and cost-effectively the data can be gathered.
The Monthly Leadership Review
Logically, KPI measurements must be available for the leadership balanced scorecard review. Typically, this happens at least quarterly — or, more commonly, monthly. The cross-functional leadership team gathers, either face-to-face or virtually, to review performance in each KPI with additional discussion for those items in the red zone where attention and correction are most needed.
On one hand, financial performance metrics (such as sales revenue) and internal process indicators (such as quality and waste) are typically available fairly quickly as end-of-quarter or end-of-month numbers, tying closely to the month’s historic performance.
On the other hand, customer and employee satisfaction measures tend to be lagging indicators and may be harder to aggregate. For these, snapshots of the most recently available data may be used.
For example, the customer KPI may have components of satisfaction, loyalty, promoter score, retention, complaints or returns, and market share that are reflections of an extended period and require more resources to gather from outside the organization. Customer satisfaction and loyalty surveys are often administered annually or biannually.
Similarly, the employee KPI may have monthly measured components related to the rate of absence or attrition and longer-term feedback generated from employee satisfaction surveys — again, usually administered annually or even less often.
Metrics may need to be gathered more frequently if the organization is trying to closely monitor the effects of a change or in other situations where rapid feedback is needed. For example, satisfaction surveys can be given quarterly to a subset of customers or employees to gain more timely feedback without continually bothering the same set of people.
Leading Indicators and Drill-Down Performance Measures
KPIs are intended to be high-level performance indicators, selected to give managers the “big picture” of how their organization is doing. These measures are often aggregates of other metrics, such as monthly sales revenue or operational waste.
More data is likely needed from aggregates to address KPIs that are in the red zone. Rather than having to go out and find information, it’s good for leaders to have ready access to the components of these aggregates. They may want to see the data more frequently than their periodic KPI review.
Certain operational metrics are leading indicators that are available daily, hourly, or almost instantaneously. For example, operational waste may be a significant component of overall financial costs and a leading indicator as compared to other cost elements; it may be reported from operations daily or by shift.
Sophisticated interconnected data systems can provide opportunities for organizational leaders to drill down from the top-level KPIs — especially those showing concern — to find out what issues are causing problems. A financial operating profit metric may drill down to cost of goods sold, waste, and equipment utilization rate in a dashboard of leading indicators that is available daily. It’s even possible to have system ties between KPI and drill-down metrics and the associated action plans and status updates, all accessible with simple computer assistance.
Don’t Just Measure… Use the Data
Measuring KPIs is essential to the success of an organization. Even more critical are the analyses and actions that are taken by leaders when they review this information and find that problems need to be addressed or opportunities leveraged.
EON has extensive experience working with organizations to determine appropriate KPIs, set up KPI measurement, and tie KPIs to strategy and action plans. Contact EON for more information.