(8) KPIs – A Matter Of Balance

When putting together a set of KPIs, it makes sense to look at the business in its entirety.

To do this, the KPIs need to provide a balance between:
• Financial and non-financial measures
• Short term and long term objectives
• Lagging and leading indicators (“results” and “drivers”)
• External and internal performance perspectives

This is a referred to as a “Balanced Scorecard”. The concept was originally developed by Kaplan and Norton. The idea is that management should not only be presented with financial information, but metrics and commentary on other aspects important to the health of the business.

Kaplan and Norton originally suggested these should be assessed for four aspects. But it is more useful to consider six aspects that help to drive business performance:

• FINANCIAL RESULTS
o Meeting or exceeding targets and budgets

• CUSTOMER
o Customer satisfaction
o Other aspects relevant to specific industry

• ENVIRONMENT/COMMUNITY (Corporate Social Responsibility)
o Improving relationships with customers to drive sales
o Improving attractiveness of the business to future and current staff
o To cut staff turnover, improve recruitment quality and reduce costs

• INTERNAL PROCESSES
o Efficient and effective
o Leveraging technology

• EMPLOYEE SATISFACTION
o Helps to improve productivity
o Avoids detrimental affects on relationships with the outside world

• LEARNING AND GROWTH
o Increasing expertise and empowerment

Whilst formal customer satisfaction and employee satisfaction surveys may only be carried out every 6 or 12 months, it is possible to monitor performance indicators more frequently. Examples include customer churn rates, customer complaints, employee turnover, and absenteeism.

Depending on the business, specific indicators may be KPIs at Board level. In other businesses, they may be at divisional or departmental level. The art is to develop a balanced set of measures at each level that focus on what is important for that business, bearing in mind the business’s size, objectives and critical success factors (CSFs).

A BI tool tends to be used to provide information on a monthly or more frequent basis, albeit with quarterly and annual totals. BI dashboards are therefore typically restricted to the information which can be collected and presented regularly. Less frequent information can be presented to management outside the BI system.

The overall result is to ensure management at each level see a balanced set of information on a timely basis.