KPI based management for multilevel companies (Part 1)
KPI definition
While creating a model of KPI based management it needs to define the directions of company’s activities aimed to achieve one or another strategic goal; also the strategy itself needs to be overviewed, rebuilt and formalized. Practically, every company has some type of goals. But nevertheless, when it needs these goals to be formalized and detailed, it often causes disagreement between persons concerned. One of the most important actions to be performed in order to direct the business to the strategy is to understand and adjust the main goals, the company needs to achieve. It is not less important, to learn how the system of internal operational activities is functioning and how its performance affects on strategic goals achievement. Defining the factors of influence is needed to establish the linking between operational and strategic activity, which makes it possible to create the strategic map, presenting all the strategic goals along with operational tasks, which work on its achievement. To monitor this map, it needs Key Performance Indicators to be defined. These indicators have to show the performance of the key activities of the company, including internal processes, activities of departments, managers’ decisions, and others.
In this case, KPI could be defined as effectiveness measurement indicators, which present one of the activities of the company, important for one of the strategic goal’s achievement.
KPIs are a kind of language to formalize the strategy and put forward hypotheses. It also needs not to mix up KPI with other measures existing in company’s process. The features, that make indicators to be KPI are the following:
- Answering the purpose of strategy;
- Presenting the performance values, taking into account both operational and functional processes*
(*) Operational process is the one, which involved directly in the creation of product’s or service’s cost and functional process is additional, serving one.
The map of the article
- Part 1: This part introduces the basic statements of KPI based management. Also it defines the term KPI;
- Part 2: BSC management system’s methodology;
- Part 3: Leading and Lagging indicators concept as an inherent part of KPI based management;
- Part 4: This part presents the basic criteria of what KPI to include in the map;
- Part 5: Cause and effect relations between KPIs;
- Part 6: The beginning of Cascading description: classification of indicators for management according to their importance
- Part 7: Conclusion of Cascading description: Indicative and Imperative KPIs
