Key Performance Indicators (KPIs)

Key performance indicators (KPIs) highlight the key success factors and performance standards of a company and are therefore essential for the company management.

Key Performance Indicators –  MSE GmbH – Management-System-Experts

The diligent implementation of key performance indicators is a prerequisite for the following two key aspects:

  • Enhancement of the organization performance
  • Measurement of the strategic achievement of objectives

Key performance indicators are attached to the critical success factors of an organization and develop a company-wide control. Thus, they enable an organization to achieve its key objectives.

KPIs provide the company with early advice when aspects important to performance get out of control.

Setup of a KPI System

Key performance indicators measure the critical success factors of an organization. There are both critical success factors which are generally relevant to organizations of a certain kind as well as those which are very specific to the organization.

It is crucial that KPIs are more strategically relevant in the long than in the short run. The number of KPIs depends on the size and complexity of an organization. In any case, KPIs must not represent a data graveyard but must lead to active management of the results - in terms of closed PDCA cycles. In many organizations, control measures are not appropriately derived from KPIs.

Identification of critical success factors

Critical success factors are determined in a combined top-down and bottom-up approach, the basis of which are the objectives and processes of an organization.

Objectives (basic corporate objectives, strategic objectives)

The starting point for the top-down identification of success factors are the overall objectives of an organization. These emerge from a well-formulated strategy as well as from clearly defined basic corporate objectives. Based on these goals, critical success factors are identified as essential levers for the performance of the organization through an interdependency logic. If available, the goals of a balanced scorecard (BSC) are taken into account as well.

Processes (core processes, management processes, support processes)

For the most important processes in the organization critical success factors are defined and aggregated, as appropriate. This can affect both the design of the processes and the behavior of the employees. In any case, it is always necessary to optimize time, costs and quality.

Concatenation of the causal connections and identification of critical success factors

The critical success factors are now defined in a combined approach from the causal connections determined top-down and bottom-up. Related to the success factors, key performance indicators are then identified. The decisive factors in this respect are the ascertainability and the meaningfulness. Frequently, KPIs are formed by a mathematical relationship from individual subindicators. This includes the individual information being aggregated into integrated control information on the basis of an interdependency analysis.

Perspectives of key performance indicators

In order to comprehensively measure the performance of an organization, KPIs are identified for four perspectives in a balanced manner. This corresponds to the approach of a balanced scorecard. It is necessary to find the most important KPIs for the respective organization. In the following you find important examples for the four perspectives:

Finance (fixed assets, current assets, capital market)

In the financial perspective, it is particularly necessary to monitor the yield and financial stability in the organization as well as, if necessary, important indicators on the capital market. For this purpose, there are different types of KPIs, for example:

  • profit indicators
  • profitability indicators
  • liquidity indicators
  • cash flow indicators
  • capital market indicators

Key performance indicators of the financial perspective are particularly important for the senior management and management.

Environment (customers, marketing and sales, stakeholders)

The aim of the environmental perspective is primarily to establish and improve customer relationships and to increase profitable sales. The following types of KPIs are particularly important:

  • customer relationship indicators
  • pricing indicators
  • break-even indicators
  • marketing communication indicators
  • market indicators
  • sales efficiency indicators

Key performance indicators of the environmental perspective are important for the senior management, CRM managers and marketing staff.

Organization (structures, systems, processes, projects, activities)

The overriding goal of the organizational perspective is to increase the productivity of the organization as well as the quality of its products and services. Mainly the following types of KPIs are to be considered:

  • quality controlling indicators
  • process controlling indicators
  • project controlling indicators
  • supply chain indicators
  • capacity management indicators
  • sustainability indicators

Key performance indicators of the organizational perspective are important for all employees - both for the management level and for the execution level.

Potential (employees, innovation)

The potential perspective is aimed at increasing the qualification and satisfaction of the employees as well as their contribution to the success of the company and launching innovative products and services. To this purpose, in particular, the following types of KPIs are monitored:

  • personnel cost indicators
  • human resources controlling indicators
  • human resources development indicators
  • employee behavior indicators
  • innovation potential indicators

Also key performance indicators of the potential perspective are important for all employees.

Implementation of a KPI system within your organization

If your company does not already have clear strategic goals, we will first carry out a strategy workshop with you and commonly formulate strategic goals. We translate these into a balanced scorecard and assign measures of target achievement to them. In addition, if necessary, we formulate the basic company objectives with you. At the same time, we look at the important processes in your company and examine with you whether the success factors work effectively and efficiently.

On this basis, we analyze the interdependencies and critical success factors with you and determine how the most important levers for the success of your organization can be measured.

Based on this information, we may create key performance indicators, possibly using a mathematical context, and supplement them with those general KPIs that are most appropriate for measuring the overall performance of your organization.

If desired, we also perform the IT-supported implementation of key performance indicators in your organization leveraging a KPI dashboard.

Optionally, we accompany you in monitoring the indicators and in the effectiveness assessment of the associated performance improvement measures.

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