Key Performance Indicators


The controlling aspect of management is represented by the generally upward movement of the business chart. Controlling implies that the business achieves successive expectations, the Encore.
The Encore is a reality of business. Those who judge us expect successively higher results. Planners and managers must consider this expectation and generally manage to achieve it. It means keeping your powder dry. It means not operating on the razor's edge. It means building elasticity into the business. It means early warning systems and gap planning to make up shortfalls. The ENCORE expectation includes product innovation, customer satisfactions, etc. Thus, the manager must always think, "what do we do for an ENCORE?"

Controlling implies systems that avoid doing the wrong thing and that moves the business toward predetermined objectives through meeting successive expectations—encore after encore. It does the right things and generally does them in the right way.

Control means problem avoidance—putting systems, policies, and procedures in place that minimize problem occurrences. Problem avoidance can be further fostered through delegation. Managers should insist that a good measure of all problems be dealt with as close to the action as possible. A control system starts by setting a standard, then measuring the actual result, and adjusting the standard or actual as required. Excellent managers know the key factors that make their business successful and the key performance indications that tell them when the business is on or off course. They are unabashed believers in the power of goals. Higher goals result in successively higher achievements. They are always out to break records. They understand that every single member of the team impacts customer service and they look for ways to measure and reward individual performance in serving the organization’s customers. I have been blown away by the quality of white glove delivery service from companies like Macy’s department store. Not only do they exercise extraordinary care in delivery and setup, they talk to you as a customer—explain what they are doing. When they leave, they ask you to report to the company. “If you think we did a good job, let our company know.” Why?—because they are being measured and rewarded. They want to do a good job and to be recognized for it.

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Measurement Improves Performance

 Measurement improves performance, and successively higher standards or goals result in successively higher achievement.  It is the idea so frequently evidenced in athletics by the announcement, “It’s a new record!”  Excellent companies use goals, and excellent companies keep raising those goals.
The most important set of measurements to develop are the organization’s KPIs (Key Performance Indicators).  These are the top line metrics that must be achieved for the enterprise (or supporting unit, division, plant, department, group, etc.) to meet its objectives.  KPIs can be both financial and qualitative, but should be highly correlated with the top priorities of the firm and the firm’s business model as developed during strategic Planning. Furthermore, if there are more than ten KPIs you probably have too many.  That goes for the KPI at the enterprise level or the KPIs for any of its supporting components.
My son was part of the Colgate-Palmolive finance team from 1992 to 1997.  He reports that they managed their entire worldwide operation with 10 Key Performance Indicators.  The first thing every business unit’s general manager would review when presenting to the CEO would be their results against those 10 KPIs.  The rest of the meeting was spent explaining how they achieved their goals or why they did not meet them.  It’s hard to believe a huge Fortune 500 company could manage a global operation using 10 measurements of success, but it’s true—and it was VERY effective.  Colgate is one of the most reliable businesses when it comes to consistency and predictability of revenue and earnings growth, and their KPI system is a key element of success in this regard.

I spent a good portion of my career working with law firms.  For them, KPIs included such metrics as leverage, effective rate, productivity, realization, days to bill and collect, client intake, closed cases, etc.  Whatever the nature of a business or organization, its success depends on certain main things and those main things should be the subject of your KPIs.
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