Selecting the right measure and measuring it right are both art and science. And KPIs influence management behavior as well as business culture.
Choosing the right KPIs is crucial. The challenge is that people have their own take on KPIs. KPIs must be aligned with the corporate goals and objectives - but should also be directly relevant to the activities that businesses are attempting to manage (process execution). If you only select KPIs based on outcomes without managing the processes that contribute to 'good and bad performance', you will continue to be out of control. However, it is equally dangerous when you focus on 'process execution' without understanding if the process is delivering the desired 'outcomes'. Perhaps the greatest challenges are not about 'data management' - but 'relationship management' within the organizations.
- a KPI must be translatable into other KPIs that can be attributed to departments down in the company hierarchy.
- a KPI must be relevant to the hierarchy of the company.
- a KPI must show what is important to pursue executing the company strategy
- the group of KPIs must prevent making it a KPI game
- a KPI must act as an early warning system that the strategy is not on track
- a KPI must empower people/teams to do "the right thing"
There must be an understanding of both outputs / process and outcomes. The problem with many frequently used KPIs is that they are not related to the process people are actually attempting to manage - and the result is that people become de-motivated and frustrated by 'arbitrary targets'. If you want "early warning that the strategy is not working" - you must recognize and monitor the potential causes of failure - which may include 'process execution' (controllable) and 'environmental factors' beyond your direct control.