It’s one of those quotes that’s been attributed to many different people, but whoever said it was onto something: “When everything is a priority, then nothing is a priority.” In fact, you could say the same thing about key performance indicators.
Everyone knows key performance indicators (KPIs) are important, but that doesn’t mean organizations always achieve agreement about what those KPIs should be. Even in finance departments, this can still be an issue. A case in point: Computer Business Review recently published some interesting stats from the Chartered Global Management Accountant (CGMA) organization that suggested CFOs need to find KPIs that will not only look at profit and loss but intangible assets as well:
“Around 76% of the respondents believe the top value drivers for their businesses is customer satisfaction, while 64% gave priority to business processes . . . However, only 15% of the respondents reported that they have dedicated finance (expertise) in their organization to fully engage with regards to ‘providing non-financial measures of progress towards strategic intent’.”
A post on Innovation Enterprise does a good job of summing up the more traditional finance department KPIs. These include overhead rate, cash flow, and profit-to-earnings ratio, among others. Because of the disparity of this data, tracking these metrics in Excel has been a standard practice for years, and advancements in cloud-based corporate performance management (CPM) tools only make it easier and more powerful to centralize and report on. And there are even more metrics outside of finance where a reconsideration of KPIs could be transformative for businesses.
But the flip side here is the risk of information overload by not being selective enough in the KPIs you need to track most. Put another way, if every metric is a KPI, then none are KPIs. Here are a few ways to get the best of both worlds:
1) Think Like a Boss: In Top 10 KPIs You’ll See on A CEO’s Dashboard, a blogger on DZone walks through some interesting possibilities that should be applied not only by the top dog but almost any business unit leader. “Revenue per employee,” for example, might make sense in some professional service firms, while “employee engagement” could make a big difference in consumer-facing companies.
2) Choose With Care: “Limit your strategic goals to about 5 or 6 really important ones to allow a clear understanding without too many options. Then the data should correlate with that strategy,” suggests an article about KPIs and big data on Information Management. “If the performance indicator is truly key, a poor result will trigger remedial action.” Lots more great advice in this piece.
3) Keep Technological Change in Mind: You could argue that a growing number of organizations are becoming service providers of one kind or another, particularly if they offer any product or service online. That’s why it’s worth reading Three KPIs For the New Digital Age in Pipeline magazine, which recommends measuring the impact of cloud computing, the ability to drive innovation and evolving from quality of service (QoS) to “quality of experience” as a metric.
The process of defining and tracking KPIs will probably vary greatly for those running Sales, Marketing, Human Resources or other non-financial business units, but the use of Excel is likely to be the one thing that’s common across the organization. As a tool that’s flexible, aligns with existing skill sets and has the capability of solving enterprise-grade business problems, it meets all the KPIs and its analysis that matter.
Regardless of the technology you use, you would be wise to keep these guidelines in mind when considering which metrics are true KPIs, which ones to manage actively, how to track them and, most importantly, how to translate them into smarter, faster decision-making for your business.