KPIs as the “Most” Important Metrics for Senior Management to Assess Business "Virtue & Value"

Whatever is being watched is what you will get. Effective performance management is both art and science.

A Key Performance Indicator (KPI) is a strategic metric that always demands a context, indicative of a strategic aspect of the organization. Senior executives should be interested in knowing more about it as it's directly related to business strategy execution. They look into KPIs to measure strategic goals and objectives while achieving them is done by several measures at the operational levels.

Top management would like to understand the significant details of implementation and put critical measurement results together to weave a big picture of strategy management progress.

Strategic objectives are measured by KPI and KPIs are generated from measures: You don't "adopt" a KPI to "achieve an outcome," you adopt a strategy to achieve the outcome, and you define KPIs to monitor performance progress, especially at the strategic level. That’s the name KPI –Key Performance Indicators stand for. Selecting a right set of KPIs that senior management is interested in is a crucial step in managing business performance effectively, as this process includes answering why you are choosing that, how you will use them, and whether you have enough resources to manage data efficiently to keep track of business progress continually.

In practice, the problem with many KPIs is that they are created and applied at a subordinate level without taking into consideration the possible implications for the organization as a whole. It too often leads to suboptimal decisions that are detrimental to the overall performance measurement and management of the company. Due to the increasing pace of change, today's strategic management is an iterative continuum. The measurement would be realistic, smart, and hence achievable if KPIs were set as per resource available, could be adjusted to fit for the dynamic business circumstance. This would make it easier to evaluate the results against the KPIs.

A good way to test the importance of a KPI is to ensure that it links to the operational levels of performance indicators in the company and improve business management transparency: Senior executives are more interested in “value realized” by the organization than the “value delivery” by the team. To ensure the seamless strategy execution, they would more likely “scrutinize” the metrics from different angles. The effective way to track the achievement of strategic goals is to cascade those well-defined KPIs down throughout the organization with the use of operational Performance Indicators, which should link all the way back to your transactional metrics found in your source systems.

Effective performance measurement strengthens the link between strategy and implementation and improves organizational management transparency. As the success of measurement will be predicated on the strategy and sourcing model. These KPIs, in turn, are influenced by business unit metrics, which reflect a business process. If you trace from the valuable products/service deliverables, solutions, and information that the company and its functions must deliver to achieve business goals back to departmental outputs and team/individual work outputs, then the linkage between strategic and operational can be relatively transparent.

Typical KPIs are revenue, customer satisfaction, or other important business drivers: KPIs and the associated metrics drive organizational priorities and behaviors. Thus, senior management can set guidelines to keep them focused on drivers of business performance, and appropriately weighted. For example, a strategic goal could be to improve customer satisfaction levels, which might then break down into sub-objectives for digitizing every touchpoint of customer experience. Or if the business strategy is an early adopter and rewards innovation then the KPI settings have to accommodate service outcomes that may have a higher level of support for high-risk and high reward innovation efforts for the long term business prosperity than that of a laggard who focuses on reaping the short term low hanging fruits only.

Celebrating success is important, but understanding what’s blocking achievements and performance are paramount. When Organizational performance gets stuck, KPIs being used could have several ramifications, especially when conducting a Root Cause Analysis. Lower level operational metrics nearly always fall hierarchically under some higher-level strategic goals, such as profitability, quality, customer satisfaction, time to market, innovation, treatment of employees, etc. When the company fails to achieve any of those goals, the senior management needs to do a comprehensive data-based cause-effect analysis, in fact, finding the right cause of the problem is a halfway to solve it.

Whatever is being watched is what you will get. Effective performance management is both art and science. Senior management is usually a rule maker. The rule of thumb is that whatever metric/KPI you emphasize is exactly the one your organization should focus on. Not only shall you measure the tangible or quantitative business results, but also for the long term, you need to assess the "virtue and value," which directly impact an organization's culture and brand, virtuous people, and virtuous actions are necessary for the business’s long-term success.

Posted in: C-Level Collaboration,KPIs,Performance Master