Key Performance Indicators (KPI): A Commentary
Journal Title: International Journal of Management Sciences - Year 2013, Vol 1, Issue 1
Abstract
The companies Act 2006, section 417(6) defines KPIs as means of “…reference to which the development, performance or position of the business of the company can be measured effectively”. Put another way, KPIs, whether financial or non financial, help gather information when evaluating a company‟s success in reports on performance. KPIs should measure particular activities in which a company is engaged. This could be decided on the basis of achievement of predefined targets, the repeated periodic status of operational objectives, or the measurement of progress towards strategic goals. KPIs may be short or long-term: strategic; departmental or corporate. „Quantitative‟ or „qualitative‟ indicators can be presented with a number; „leading‟ indicators are designed to predict future outcomes; „process‟ indicators measure efficiency and so on. Selecting relevant KPIs relies on a good understanding of what‟s important to an organization. A KPI useful to finance is quite different to one assigned to sales. A retail business, for example, might decide measuring sales per square foot and customer satisfaction was key, where a company in the oil and gas industry may opt to measure the value of new reserves. Bernard Marr, Chief Executive of the Advanced Performance Institute (API), a research and advisory organization specializing in organizational performance, was once commissioned to audit the performance management approach of blue chip company InterCorp3. Operating within a partnership business model, InterCorp chose not to develop their own KPIs. Instead it outsourced the process, and used an off-the-self questionnaire to measure performance and that of its partnership. Marr tracked what information was collected and its impact on facilitating InterCorp‟s decision making. He said much of the data was „interesting to know‟, but in over three years not one decision was taken based on the survey data. In terms of improving its performance and relationship with partner, InterCorp‟s failure to ensure KPIs were relevant resulted in unnecessary and valueless work for all concerned (Marr, B, 2010). Properly applied, KPIs can identify potential improvements, such as revision to strategic objectives and so are routinely associated with „performance improvement‟ initiatives. One way to select KPIs is by using a management framework such as the balanced scorecard (p.28). Whether related to achievements reached over weeks or months, a KPI needs to be executed so manager, stakeholders, or potential investors, have access to important performance information. While usually a part of legal compliance, KPIs can equally help managers run their business better and create value in their companies.
Authors and Affiliations
Dimitrios Nikolaou Koumparoulis
Keywords
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