Managers are responsible for ensuring that employees achieve high levels of performance, reach production goals and advance the overall goals of the organisation. The manager’s primary question is “How well is this employee applying their knowledge, skills and abilities (KSAs) in meeting performance goals?” The answer has traditionally come from the formal evaluation process, where managers review metrics of performance to determine whether the employee has achieved desired outcomes.
What is often absent from these evaluations is whether employees are devoting their efforts to the “right” activities. Your firm may have many high-performing employees but if they are not focused on advancing the strategic goals of the organizations, their efforts are for naught. This is where Key Performance Indicators (KPIs) become important and they are applicable to both individual employees, teams, as well as the organization as a whole.
Key Performance Indicators are metrics that a company uses to measure success in various areas. KPIs may reflect hard numeric data (e.g. number of new customers per quarter, revenue, etc.) or “softer” issues, such as customer satisfaction or employee engagement. Many times KPIs are used to conduct staff evaluations; e.g. did the employee meet their sales quota for the year or complete projects successfully and in a timely manner?
To be effective, KPIs needs to be specific. It is not enough to say “We want to increase sales” or “We want to enhance customer satisfaction.” Both are much too ambiguous and open to different interpretation. Rather, an effective KP would specify, “We want to increase sales by 25% from current levels by the end of the fourth quarter” or “We want to achieve a score of “Superior” or Excellent” on 90 percent of completed customer satisfaction surveys in 2012.
Key Performance Indicators are a highly valuable tool in ensuring that your firm focuses on those areas that are most in need of improvement. To ensure staff buy-in at all levels of your company, the ranking of KPIs should come from the highest levels of your organization and be communicated to all employees. This communication should not only list the KPIs but provide the reasoning behind them; transparency is the best way to motivate staff.
Employee-based KPIs
When the activities of employees are defined in terms of KPIs, it helps focus the team and assures that their efforts are aligned with the overall goals of the organization. Key Performance Indicators represent an important link between employee effort and organizational success.
Here’s one example of how employee goals may be aligned with corporate strategy:
Organisational Strategy: To become recognized for providing superior customer service.
Organisational Objective (must be specific and measurable): To achieve a score of 90% on the “excellent” and “superior” categories of customer satisfaction at the end of 2012.
Organisational KPI: Number of unresolved customer issues and complaints at the end of each month.
Team Goal: Reduce the number of customer issues and complaints by 10% during each month.
Measuring Performance
You will need to measure employee (and team performance) on a regular basis to determine whether they are meeting their stated goals. The KPIs of the team could be measured in term of the monthly percentage change in customer issues and complaints that resulted in a positive outcome (e.g. number of satisfied vs. unsatisfied customers as reflected in customer surveys).
Questions to Help Build KPIs
What is the strategic vision of the company? How will this be realized?
What are the organisation’s objectives? What steps need to be taken to move the company in that direction?
What are “critical success factors” to keep your company competitive within its niche?
Creating KPIs
What metrics will be most important in helping your evaluate whether your firm is meeting strategic goals and objectives?
v How many metrics will you use? (How many is too many?)
How often should performance be evaluated (monthly, quarterly, biannually or annually)?
Who will be responsible for tracking metrics (usually the manager/supervisor of the department)?
How complex should the metric be (if you need SPSS software to calculate, the metric is probably a bit over the top!)
What will you use as a benchmark of performance? Benchmarking establishes a baseline of performance from which you may base desired outcomes
Summary of key points
Key performance indicators are metrics that link company strategy with employee efforts.
If you think of your firm’s strategic practice as a pyramid with vision at the top and employee actions forming the base, the middle portion contains those KPIs that have been selected from your identification of your firm’s critical success factors that are derived from overall corporate strategy and objectives.
The result of implementing KPIs is that employees will be doing what they should be doing and that metrics for performance are directly tied into your firm’s success.
Twin Consulting has helped many clients select appropriate KPIs and implement systems to monitor success. This is a crucial element of Twin Consulting’s business development services.
