Key Performance Indicators

Recently, I pointed to an interesting website, www.kpilibrary.com. Jgdprovily responded:

"frank, with all respect, but maybe you do not fully understand what a key performance indicator is, it is a very critical measure for boosting performance and it differs from company to company, even they are operating in the same market and or branche. Just copying KPI's from a library is the dummest thing one can do, and dangerous too."

I don't want to get into a definitions debate on what is a key performance indicator, just a performance indicator, a measure or a metric, but there are indeed different types of performance indicators, based on operations and efficiency, and the ones that are more strategic of nature and focus on business effectiveness. 

I think we would all agree that a key performance indicator for human resources would be the absenteeism rate. Lagging of nature, compared to employee satisfaction, leading of nature in terms of organizational productivity. Everyone would also agree that moniting the days sales outstanding (DSO) is an important metric in financial operations, and in today's economy even a key indicator. Conversion rate would be a bottom-line in marketing campaigns and sales channels, no one would argue about that. But does it make sense to come up with your own definition, because it differs from compay to company? Probably not. In fact, organizations would be wise to copy a commonly understood definition. This allows you to:

* benchmark performance, compared to other companies
* get ready quick, so management can spend time on the performance indicators that DO differ from company to company
* save cost on the reporting, by making use of standard software.

But indeed, some performance indicators are unique, the ones that are connected with the strategy of the organization. It is pretty clear that one attribute of a successful business strategy is the extent to which it differentiates in the market. It is hard to be a winner with a me-too strategy. And even when you are operating in the same market, and have a similar strategy, then there is still a difference in the core competencies and the management maturity of the organization, making that different key performance indicators are needed. Copying those from a library would indeed not be very wise. 

Treacy and Wiersema defined three core strategies: operational excellence (aka cost leadership), customer intimacy and product innovation. They point out you need to excel in one of them to be successful, and simply score sufficient in the others. Perhaps this is a guideline on how to choose where to take standard definitions, and where not. 

Blindly copying performance indicators from a library can be a dangerous thing, as my reader points out. But trying to do everything yourself is equally dangerous. The answer, as usual, lies in balancing the two.