accountingcpd.net author Robin Tidd believes Key Performance Indicators (KPIs) form a key part of Business Performance Management and Culture Building. In the first of this two part blog he looks at why and how KPIs really work.

by Robin Tidd

Introduction

If you avoid the pitfalls in application and use the right performance indicators well you can expect your organisation to have a competitive advantage. There is overwhelming evidence that this is true.

The right Performance Indicators work by having an effect on performance, both by guiding actions and motivating people. Key Performance Indicators are therefore the ‘key’ ones, the 'red flag' ones which represent the factors which must be monitored at all times. There are also the more notorious high level ‘results’ KPIs which may alternatively be known as Key Results Indicators.

By working on processes within the organisation – ongoing improvement, everywhere, never ending – you will have a far greater chance of sustaining good performance, but you will also have something arguably more desirable and predominant, namely a great culture. Good use of KPIs is completely synonymous with the building of a great culture. Unfortunately the converse is also true, and poor use of KPIs will harm the culture.

Do KPIs really work?

Let me give you some ‘metrics’ which I heard at an important international management accounting conference a couple of weeks ago.

  • Apparently 90% of the ‘Fortune 500’ organisations in the US use the Balanced Scorecard to monitor the alignment of their plans with their strategy.
  • 70% of these do not think that their use of the Balanced Scorecard has added value.

Asked what this means, the presenter, a very experienced and senior business performance specialist, replied that this under-performance was probably not down to the inadequacy of the BSC in this respect, but to its poor application. I believe that, as a parallel, there are many who doubt the effectiveness of KPIs. It is probable that the reason for this under-achievement is not that the tools do not work, but that they have not been fully or correctly implemented.

The world’s best organisations take 'dealing in facts' and 'real-time information' for granted in their philosophies. They also place great emphasis on the ‘involvement of people’ and a 'proactive improvement culture’. These are the real purposes served by KPIs.

Robin will conclude this blog next week when he discusses the right KPIs and applications for them.