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How to Set Key Performance Indicators

How to Set Key Performance Indicators

As organizations continue to put greater emphasis on fact-based decision making, ensuring relevant measures and timely access to data becomes increasingly important. Often organizations will pinpoint a handful of Key Performance Indicators (KPIs) to gauge the organization’s operational performance; however, picking and aligning the “right” KPIs to the organization’s goals is often easier said than done. 

I recently sat down, virtually, with over 50 process professionals to discuss the strategy, buy-in, strategic alignment, and visualization of KPIs within their organization. 

At the beginning of the call, I asked folks to share why they joined the roundtable, and the most common themes were: looking to learn from others, see what measures were being used most often, and determine if their organization was on the right path or not. Throughout this blog, I recap some of the participants thoughts in each of the following categories:

  • Strategy & Alignment 
  • Gaining Buy-In
  • Picking the Right Measures 

Strategy & Alignment

One of the core tenets in APQC’s Seven Tenets of Process ManagementSM is Strategic Alignment. Strategy and process management activities should be integrated and form a symbiotic relationship. Aligning your KPIs to an organization’s overall strategy will help drive buy-in. 

Strategic versus Operational KPIs

One question roundtable participants asked was around the difference between strategic and operational KPIs. Many attendees said that strategic goals should be SMART goals – specific, measurable, attainable, realistic, timely. The strategic and operational goals should also be connected; but the lower-level measures are the ones that help us understand what’s driving the higher-level goals. 

Another way to look at it is as a “top-down” approach. The strategic goals start at the top and funnel down to the operational goals that are set. By setting operational goals that aim to achieve something related to a strategic goal, you can ensure that the goals are inter-related and help drive organizational-wide efforts to achieve common strategic goals. 

What is a “Good” KPI?

Another common question was “what is a good KPI?”. I think one of the best responses was, “it depends”. While this hasn't traditionally been a well-liked answer, I really think it fits here because a “good” KPI will vary vastly depending on the process being measured. One participant said “just following the best practice in the industry" is not going to always be the right approach. Instead, the focus should be on doing “what is a RIGHT fit for your organization. Your competitor’s goal is not your goal”. 

Gaining Buy-In

Once you have selected measures, it’s important to ensure the organization has bought in to them.  Having leadership support helps drive the importance of a program, accountability, and appropriate expectations. But securing support for process improvement work is not easy. Additionally, some professionals may feel that data is being used “against them” or may be sensitive to the use of some data as a measure of their performance. 

Participants in the roundtable had good discussion around this topic, and here were some of the ways they suggested organizations combat professionals’ fear of metrics:

  • Try to group the data into a more organizational view, versus one that singles out an individual’s performance.
  • Have a coaching session with the employee and manager on how the individual is performing, and ways they could work to improve performance to meet a common goal. 
  • Focus on fewer reactive/red metrics – instead focus on the improvement piece; what can be done to achieve the desired result.
  • Try to frame it as a SWOT, not a judgement of performance. i.e. how can we better develop you here? What is blocking your growth, are there pain points of the process to improve, etc. Then, use the “power” performers to coach the under performers. 

Picking the Right Measures

Some participant questions were centered around very specific measure selections – specifically in finance and supply chain. Here’s a quick list of participant responses, followed by some resources in APQC’s Resource Library. 

Supply Chain Measures

  • On time deliveries
  • Demand capacity of suppliers 
  • Non-conformance of supplier deliveries 

For additional supply chain measure suggestions, view:

Finance Measures 

  • Sales growth
  • Volume margin management
  • Profit growth 
  • Share growth 

For additional financial management measure suggestions, view:

End-to-End Processes

Many organizations have end-to-end processes in place; which bring about a whole new set of necessary measures. Thankfully, APQC has done the hard work for you – check out our End-to-End Process Maps and Measures collection to see which measures APQC suggests for each end-to-end process and sub-processes. Be sure to view the PDF version  for the list of common measures and KPIs. 

Conclusion and Additional Resources

For a full recap of the roundtable, view this article: Finding the Right Measures for PPM and the Business