The Truth about KPI’s
Building Your Bridge
Far too many companies and individuals are focused on the accounting, and the truth is that the accounting system doesn’t really provide you with a lot of useful and relevant information.
This may tweak a few of you the wrong way, but read on before you shoot the messenger.
The reality is that most leaders have gotten more and more precise and sophisticated at measuring less and less of an organization’s TRUE value.
At present, the entire focus of financial analysis is on “the numbers,” despite mounting evidence that they’re the WRONG numbers.
An organization’s most valuable assets are intangible.
Consider the following:
- learning ability
- technological know-how
- proprietary software code
- databases
- market knowledge
- communications networks
- distribution channels
- customer loyalty
- staff morale
- strategic alliance partners
- corporate culture
Yet NONE of these assets are reflected in any balance sheet or profit-and-loss statement.
Innovative leaders need performance measures that are dynamic and forward-looking.
Acquiring these measures will require discovering, capturing, and reinforcing the key strategic and competitive drivers of future performance.
One of the very few management maxims that have stood the test of time is “You get what you measure.”
This being the case, it is unwise to expect strategic performance from organizations that depend on OBSOLETE measurement systems.
Organizations that attempt to build the information infrastructure necessary to compete and win in current economic times must devote considerable energy to devising systems that not only capture the new performance, but actually promote it.
A word of caution, performance measurement, whether strategic or otherwise, has little if any value in and of itself.
Performance measurement exists-or should exist-for one reason only:
TO ENHANCE PERFORMANCE.
No matter how elegant they may appear, performance measures will prove useless if they fail to meet four key stress tests.
To be effective, performance measurement must .
- Help everyone to identify priorities they should pursue to maximize potential. They must be truly aligned with the strategic goals of the organization.
CRITICAL POINT HERE — If they are not aligned with the company’s strategic goals then they are USELESS.
- Focus the majority of your attention on those priorities once they have been identified.
- Facilitate progress to EVERYONE involved in pursuing the identified priorities.
- Lead to an observable difference in behavior and performance. This means that they must be consciously reinforced in practice, with both rewards and compensation. Be sure to reward the EXACT behavior you want repeated.
Without these four conditions, performance measurement is a wasteful, counterproductive exercise.
But if these conditions are met, forward looking performance measures can become an indispensable part of your strategic arsenal and in helping you come out of this recession as a winner.
To learn how to “Strategically Reposition” your company in today’s economy, fill out the coaching form on this page and I will personally ring you within 24 hours.
3 Responses to “The Truth about KPI’s”
Katie Paine December 14th, 2009 at 12:50 pm
This is a fabulous post, and echoes what I’ve been saying in speeches and articles for years — you become what you measure so make sure your KPI’s are truly what you want to become. I’m wondering if we could reprint it in our newsletter, with appropriate attribution of course.
Ciaran December 14th, 2009 at 1:15 pm
I agree with the principle, there is far too much left off the balance sheet (I guess that’s what happens when the world is run by accountants) I’d love to see real-world examples of companies measuring things like staff morale, or learning ability etc.
Ivo Holsts December 15th, 2009 at 11:00 am
This is a fantastic article. I always thought that there is no point of looking on balance sheets of last year in order to measure success or failures for the future. It is so wrong and most of the institutions do not understand that. The truth measurements do no sit in a balance sheet, but in those people and TEAM, who works in particular field.