Successful implementation of Balanced Scorecard and introduction of strategy maps concept of the company very much depends on the right choice of key performance indicators (KPIs). Unfortunately, it is impossible to develop a universal set of key performance indicators which will be effective for any company. Every business is individual and that means that it requires individual approaches to performance evaluation and strategy development. Much depends on the strategy itself and the company’s strategic goals. Every business has different key success factors and key performance indicators should reflect relations to the success factors.
- Scroll down to check out the list of KPIs
At the same time, it is possible to compile a general list of key performance indicators which are divided into categories. This list should not be viewed as a must have set of indicators. In each case the number of key performance indicators and KPIs themselves will vary. But the list of key performance indicators which will be compiled below is based on the experiences of many companies and researches related to strategic maps.
- If you need to have some ready-to-use Key Performance Indicators for your specific niche, then check out the commercial library of KPIs at www.strategy2act.com where you will find useful metrics and KPIs together with best practice articles about KPI.
One look at the list is enough to understand that this list of key performance indicators includes both final indicators and those KPIs that are characterized by key success factors. You’ll find both leading and lagging indicators. As known lagging indicators are mostly concerned with financial issues, while KPIs related to customer relations, internal business processes and learning and growth will tell much about what will happen to the company. Some indicators, like the number of received patents, may be viewed as a result for learning and growth perspective.
Some popular articles where KPIs were discussed
Most indicators, however, combine final indicators and indicators characterizing certain activity aspects. For instance, such indicators as time for placing an order characterizes one of key activity aspects, while customer loyalty is a final result. At the same time, customer loyalty stimulates sales volumes, which is a vivid example of how cause and effect ties work within the framework of strategy maps.
Align KPIs with the strategy
Having a list of ready-to-use KPIs is really helpful and in the article below you will find some suggestions for KPIs for the 4 perspectives of the Balanced Scorecard. The problem with these KPIs is that they are taken out of the business context.
The majority of them can be used for measurements, but they will hardly help you with acquiring the ultimate business performance. KPIs works effectively only if they are aligned with some business objectives and strategies. Check out the presentation slide below. This example is a great illustration of how one can use KPIs to actually improve business strategy and ultimate business performance:
- Total assets holdings
- Asset value per one employee
- Capital productivity ratio
- Sales volumes for new products/services
- Working efficiency of personnel
- Profitability of assets
- Revenue from new products/services
- Revenue per employee
- Market price per share
- Profitability of net assets
- Added value per one employee
- Efficiency of assets
- Profitability of investment
- Efficiency of sales volumes
- Ratio of marginal revenue
- Marginal revenue per employee
- Cash flow
- Ratio of equity capital to total assess holdings
- Profitability of investment
- Total expenses
Of course, this is only a short list of indicators, and other key performance indicators may and must be evaluated. You can find the full list of all possible indicators in specialized literature. But from the above list it is evident that some business experts and authors (like Kaplan and Norton) tend to use markets and customer oriented indicators in the financial category. Although such indicators characterize past periods of company activity and can be obtained from financial and accounting reports, they have strong relations to a customer perspective of the Balanced Scorecard.
Key performance indicators of the financial category make it possible to perform comparative analysis of different departments of the company. It is recommended to contrast obtained results with the average indicators for the industry and results obtained for the past periods. For example, the Volvo company is effectively using graphs and time series to present its policy and strategy. Financial perspective may include both static and dynamic indicators. This makes it possible to evaluate current condition of the company and changes in performance and profitability.
- Number of customers
- Market share (%)
- Average annual sales volume per customer
- Number of lost customers
- Average time of taking an order
- Number of customers per employee
- Specific weight of concluded agreements in the total number of contacts with customers
- Customer satisfaction
- Customer loyalty
- Expenses per customer
- Number of visits/contacts with customers
- Number of advertising campaigns
- Trademark index
- Marketing expenses
- Average contact duration with a customer
- Average amount of products shipped to one customer
- Number of customer visits to the company
- Average time between first contact with the customer and signing of agreement
- Average annual expenses to serve one customer
Some of the above mentioned indicators characterize customer perception of the company, including customer satisfaction and different indicators on relations between customers and the company. They may be decomposed to customer segments, sales channels, etc. Such indicators are simultaneously reflecting current situation in relations of customers with the company (certain segment of customers or customer group) and changes in customer relations over a certain period of time. In other words, these indicators look like a balance of customer relations and report on revenue and losses. Experience shows that in order to forecast sales volumes organization should monitor indirect indicators like recognition rate of the brand and the like. Besides, there are even deeper indirect key performance indicators like company marketing efforts or number of contacts/visits to potential customers. Such indicators are sometimes included with learning and growth perspective especially if they reflect expenses related to entering certain market segments or repositioning of the company.
Depending on the situation (strategy and key success factors) the company may require indicators reflecting product share in total purchase volumes of customers, number of contacts with customers, number of employees who regular contact customers, etc. You will find more information in specialized marketing literature and studies.
Internal business processes
- Specific weight of administered if expenses in total revenue
- Ratio of timely completed orders
- Average product labor-output ratio
- Average development time of a new product
- Average time from placing the order to its completion
- Supplier frequency
- Average decision-making time
- Turnover of material assets
- Labor productivity growth
- Efficiency of information systems
- Increasing number of IT Systems &Computer Equipment
- Specific weight of expenses on IT Systems in the total amount of administrative expenses
- Emission of hazardous substances to the environment
- Influence of company products to the external environment
- Expenses related to correction of mistakes in managerial decisions
- Number of properly executive orders
- Administrative expenses per employee
It is often reasonable to evaluate not only the efficiency of some production processes and operations at a given moment, but also assess the potential of these indicators, and the opportunities to improve them in order to increase production output and broaden production line. Similar to customer perspective, indicators must evaluate current condition of the company and changes in internal processes over a certain period of time. If the company decided not to single out a separate perspective of human resource capital, it is possible to include indicators reflecting efficiency of human resources and technologies to the internal processes perspective. It is very important to include indicators on efficiency of IT Technologies use. In the age of information any company is interested to evaluate indicators showing customer skills and efficiency of using IT systems, computer equipment Internet and web based services, corporate customer database etc.
Learning and growth perspective
- Expenses for research and innovation
- Specific weight of expenses on research and innovation in the total amount of expenses
- Specific weight of expenses on improvements in total amount of expenses related to IT technologies
- Length of research and innovation projects
- Resources allocated on research and innovation
- Investment in training of personnel dedicated to customer relations
- Investments in innovation and research
- Expenses related to preparations and study of new products
- Investments in exploration of new markets
- Frequency of direct contacts with customers
- Number of registered patents
- Average time company patents are in force
- Number of rational and creative ideas per employee
- Average training cost per employee
- Employee satisfaction index
- Marketing expenses per customer
- Employee trust rate to the company
- Specific weight of employees who have not reached a certain age in the total number of employees
- Non production expenses per customer
- Specific weight of new products in the total amount of products
Similar to the previous category, the above mentioned indicators often reflect interaction of human resources and technologies. Company management is often forced to use indicators that characterize uncompleted processes contrary to final KPIs. As is known, high professional and education level of strategic development department employees does not guarantee that the company will complete a great number of successful innovation projects, as well as huge investments in business do not guarantee success. Selected indicators should enable users to make own conclusions as to efficiency of using certain resources or combination of resources.
Human resources perspective
- Leadership index
- Personnel motivation index
- Number of employees
- Personnel turnover rate
- Average employment time in the company
- Average employee age
- Time spent for education and training of personnel
- Ratio between temporary and permanent employees
- Percentage of employees with college degree
- Average employee absence time
- Number of female managers
- Number of job applications to the company
- Personnel trust rate to the company
- Ratio of employees under 40 y.o.
- Annual expense for re-education of personnel
- Number of fulltime employees who spend less than half of working time in office
- Ratio of fulltime employees
- Number of temporary fulltime employees
- Number of part time employees
- Number of employees with a per hour compensation system
Please note that if the company decides to create a separate human resources perspective then indicators should fully reflect strategically important characteristics of personnel. One of these characteristics is personnel competence. Besides, many human resource managers group employees by age, sex, education, experience, nationality etc. Employee turnover rate and career chances have an exceptional importance. As a result, selected indicators should have strong cause and effect ties with indicators in other categories.
It should be repeated that the choice of key performance indicators solely depends on a company’s strategy, its organization structure, strategic goals, mission and values. A certain set of indicators which proves to be effective for one company may turn out to be a failure for another. That’s why, most top managers and scholars claim that successful choice of key performance indicators predetermine successful implementation of Balanced Scorecard and strategy maps in the company.
What if your business is different?
It’s great to have a list of ready-to-use KPIs, but what if your business is different? In most cases you cannot take the KPIs out of the box and start using them. The best KPIs are not on the list above and only appear as a result of careful analysis.
We hear the question “Why KPIs don’t work?” so often that we decided to prepare a separate report called “Why most KPIs don’t work and what to do about this.” You can download this report for free:
Download “Sound approach to KPIs” for free:
I’m sure you have a lot of questions after reading this article. Feel free to contact us or simply ask your question in the comments below. We’ll be happy to help.