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Can using KPIs help your business?

posted 3 May 2012, 17:15 by Leighton Hill   [ updated 9 May 2012, 00:00 ]
The buzzword "KPI" has been around for some time but I hear it more and more on the lips of young business managers these days. I suspect that as with many concepts that obtain the buzzword status, the original concept behind the buzzword has been lost and the word takes on a special context all of its own: people use the word but don't know how to utilise the concept.

This may be the case with KPIs. Many businesses are not employing the concept correctly and are trying to manage too many KPIs at any one time. As a result the management become more focused on the process than outcome they are trying too achieve.

KPI stands for key performance indicator. In this context the word key is used to mean a crucial step or requirement. That suggests that the performance measure is crucial not "nice to have", just "important" or a "guideline". I have seen job descriptions that contain a multitude of KPIs. I doubt very much that all of them referred to a performance measure that was crucial or that the employee was able to meet all of their KPIs all of the time.

I think it far better that there are only a very small number of KPIs set. It may be more productive to focus only on one KPI at a time rather than many KPIs. Only when the performance being measured reaches a satisfactory level and has become part of the business DNA should the focus move to another KPI. 

To be effective the KPI needs to be measured frequently, hourly, daily or weekly depending on the rhythm or nature of the business. This would prove difficult or impossible if too many KPIs are being monitored at any one time.

The KPI needs to be acted upon by someone with the appropriate authority, the CEO or a senior manager. Without the appropriate authority taking action it is a waste of time making the measurement and again, this would be difficult with too many KPIs.

Each KPI must have a significant impact on the organisation and affect more than one Balanced Scorecard perspective. It must encourage appropriate action that has a positive impact on performance.

So, yes, using KPIs can help your business but use them carefully. Don't over do it: don't focus on too many at any one time. Remember that what is being measured has to be a key feature of your business at that stage in it's development.  

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