Business Performance Management: Identifying Key Performance Indicators

by Curt Hall, Senior Consultant, Cutter Consortium

I was talking recently with a colleague who is involved in a business performance management initiative. The subject quickly turned to one of the most important challenges associated with such an effort: identifying key performance indicators (KPIs). This Advisor summarizes what we discussed.

Basically, there are a number of techniques useful for identifying KPIs for business performance management efforts. But the reality is that, more than likely, organizations are going to have to utilize multiple techniques.

Organizational Goals and Objectives

Begin by analyzing the organization's goals and objectives. Such analyses are vital because they will provide the insight required to develop the necessary metrics that will allow you to align the organization's actual operations with its strategic goals. It's important to remember that KPIs are designed to gauge progress toward vital, strategic objectives usually defined by upper management. This is opposed to the more "generic" metrics used to measure more mundane (i.e., less strategic) processes. For this reason, KPIs are typically tied to a balanced scorecard or some other business management methodology. In addition, KPIs are metrics whose measurement functionality is designed to be applied enterprise wide, so as to impart standardized definitions and meanings that cut across different departmental and organizational boundaries so that everyone in the company can operate off of the same set of definitions. The goal is to foster greater visibility, better execution of strategy, faster reaction to opportunities and threats, and improved collaboration and coordination across key business operations. Typical examples of KPIs include those designed to measure and achieve optimum customer satisfaction, for gauging organizational learning, or improving overall product quality.

Analyzing Existing Processes

Next, I recommend analyzing your organization's existing business processes. (In reality, however, this will probably need to be carried out, to some extent, in conjunction with analyzing the organization's goals and objectives.) It is fundamental to any business performance management initiative (or CRM or BI analytics, for that matter) that organizations identify the vital activities and processes whose measurement is key to driving the organization to achieve its strategic plans and directions. In short, I have a hard time imagining how a company can put business performance management into practice without analyzing its business processes. For this reason, I recommend that organizations take steps to ensure that their business performance management and business process management efforts are well integrated. Ideally, the more collaboration between these groups the better.

Survey, Interviews, and Brainstorming Sessions

Supplemental methods for identifying KPIs include conducting interviews and surveys with senior executives and key managers. Both of these are followed up with brainstorming sessions in which the various KPIs that have been identified are pared down to include only those which are common across multiple departments and divisions. Many practitioners recommend one-on-one interviews, although they require more time and effort to conduct.

Use a Combination of Techniques

It is the strategic, enterprise-encompassing nature of KPIs that makes identifying and defining them difficult. Consequently, it's tough to really pin down one "best" or optimum technique to use. In practice, the reality is that many organizations are going to find it necessary to employ a combination of techniques to define the KPIs they need to support their performance management efforts. One last note is that, as I've said in the past, make sure that the people closest to the business are actively involved in the KPI identification process.

Do you have any thoughts on identifying and defining KPIs for business performance management? As always, your comments and insights on this announcement and the business intelligence, data warehouse, and CRM markets in general are welcome. Send your comments to chall@cutter.com or call me at +1 510 848 7417.

Sincerely,
Curt Hall, Senior Consultant
Business Intelligence Practice
E-mail: chall@cutter.com