How to align KPIs with the company strategy.
In the last session we discussed whether KPIs should be targeted to achieve short, medium or long-term objectives.
We said that operational staff should aim for short term objectives, management aim for medium term, and executives aim for long term objectives.
For example, if you are relatively new to an established business sector, your short-term objective might be to win market share, build a customer list and establish a reputation for great customer service.
Your medium-term objective might be to grow business with existing clients, add new clients to your list, extend your product range, enhance your reputation for customer service.
Your long-term objective might be to use your market position to source better, improve margins, maintain your reputation for customer service, and become profitable.
In this scenario, you do not want to give a short term KPI to your sales team to maximize profitability, because this conflicts with the business objective of winning market share. To do that, you may need to buy market share with competitive pricing or even loss leaders, and your operational sales team need to understand that, and have KPIs consistent with the strategy.
Equally there is no point targeting the customer service team with adding new clients, as they can only work with existing clients. Their target might be client retention, and customer satisfaction. You could target them with getting customer referrals, as that is within their sphere of influence.
Each person’s KPIs need to be consistent with their objectives and the business decisions for which they are responsible.
Why do you need KPIs?
There is a saying that if you don’t know where you are going, it is very difficult to get there, or t even to know if you are on the right road.
This is why KPIs are useful for your staff to work towards. If they are written properly, aligned with the strategic direction of the business, and the person who has defined them is confident that their achievement will put the company where it needs to be, then they provide signposts and direction markers for the staff. They know what they need to achieve, and by when.
Select the KPIs that will enable your organization to get to where you want it to be. Be careful what you wish for, you may very well get it, particularly if you link achievement of KPIs to remuneration, bonus, or promotion. Think through very carefully what you are asking your teams to do, and how it will influence their behavior and business decisions.
I have seen situations where individual bonus targets are set, which have destroyed the teamwork and spirit of cooperation that previously existed. Once individual performance and bonus targets were set, staff began to work on an “every person for themselves” basis, destroying the existing team cooperation. In many cases the net result will be a less beneficial result for the company. So, consider carefully what you are going to target your staff to do, and consider using team KPIs where it will benefit the overall performance
Limit yourself to a few KPIs that people can truly focus on, and where results can easily be read and seen by all. Ideally, they should be mission critical for the business.