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In the last post, we have touched on KPI definition and examples , now we will show you how to design a KPI template.
Read more: Common budgeting approaches and Tips to build effective budget for businesses
Building KPI template
Strategy map
Effective Key Performance Indicators are those that link directly to corporate strategies. Nowadays, many top performing companies have employed tools such as Strategy map or Value creation map to effectively map out a course of actions that help achieve the value proposition (output deliverables).
Figure 1 below shows how a strategy map can help organisations identify KPIs:
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Level 1 |
Value proposition (Operational excellence/Product leadership/Customer intimacy) |
|||
|
Level 2 |
Financial strategies |
Customer strategies |
Internal perspective strategies |
Learning and growth strategies |
|
Level 3 |
Revenue growth |
Retaining/adding customers |
Internal process efficiency |
Human capital |
|
Productivity |
Increasing revenue per customer |
Innovative processes |
Information capital |
|
|
Asset utilisation |
Reducing cost per customer |
Customer management processes |
Organisational capital |
|
|
Level 4 |
KPI |
KPI |
KPI |
KPI |
Depending on the value proposition, each company can determine which level 3 item (value driver) is more important than the others. For instance, a company following an operational excellence value proposition must make internal operations a very high priority, therefore emphasising “Internal process efficiency” and having more KPIs for that aspect.
Key Performance Questions (KPQs)
In order to narrow the list of metrics down to the most meaningful and relevant ones, articulating KPQs is the solution. If there is no question that needs to be answered, there is no need for measurement.
Here are some tips when formulating KPQs:
Keep them relevant to your business
Many companies make the mistake of replicating KPQs and ultimately KPIs from those of others. However, each business is unique and it is crucial to identify what matter the most in line with your corporate objectives.
Engage as many people as possible
By allowing employees as well as external stakeholders to have their inputs, organisations can ensure relevance and consistency. After all, KPQs and KPIs serve to steer people to the same direction, thus, the more people who understand and agree with the questions, the better.
Keep KPQs precise
For each value driver, there should be between one and three KPQs to avoid aimless measurement. The question itself needs to be short, clear and jargon-free.
Use open questions
Since KPQs provide the context for KPIs to answer, they should be formulated as open questions to trigger reflection, explanation and discussion. Sometimes people forget the purpose of measurement is to ultimately improve business performance. Hence, yes/no answers are not good enough.
Focus on the present and future
KPQs should direct us towards the future so as to trigger improvement. It would be a dead end to ask questions such as “Have we done XYZ?” Instead, it should be questions such as “How well are we doing XYZ?”
Refine KPQs through usage
Once KPQs are created, their answers could be used to evaluate the effectiveness of KPIs, in terms of answering those questions and helping people make better decisions. Organisations can always fine-tune KPQs to ensure relevance over time.
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In our next blog article, we will go over the remaining steps in a KPI template. This is the third article in our series of 5 on KPIs.
Click to read the previous articles:
- Why we measure business performance and caution points
- Key Performance Indicators: Definition and examples
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