When building a business strategy, we invariably start talking about KPIs – and run the risk of diving straight into measurement and target setting without really thinking about the ‘what, why and when’ of the broader strategic focus.
As with everything in business, the first question to focus on is the motivation – or the ‘why’ of KPIs within the context of a broader business strategy. Without this, we chase our tails and get nowhere!
Why measure the business?
All companies hold monthly reviews to look at their KPIs and operational measures. Often, the measures suggest that things is on track and going in the right direction. And yet, the business is either going nowhere – or in the process of failing – and its leaders are wondering why.
The intention is there, and the commitment to measurement. Often the process is there in terms of a structured monthly review meeting, and even a reporting system… but the measures do not relate to a strategy, and there is no link that makes the measurement work meaningful – or effective. In short, no one understands the ‘why’ of the KPIs – and as a result, the KPIs in isolation achieve nothing and have no purpose.
What makes a true KPI?
The value of a KPI is only unlocked when it is linked to an objective; whether that’s strategic or operational. Without this intrinsic link, it is just a random, standalone figure. And yet, all too often businesses chase after seemingly random KPIs, because there is a desire to be seen to do something.
Chasing tails
Business strategy can be hard, and the most difficult bit is arguably at the beginning when the business is working to get the foundation in place and defining its vision, core values and purpose. Perhaps the next most difficult stage is creating strategic objectives that turn the organizational purpose and vision into strategic priorities. These stages are challenging and they require thought, focus and difficult questions, often from a series of people across the organisation.
Because these foundational stages are sometimes difficult and poorly understood, many businesses simply bypass them and go into what they know best – setting targets and chasing after them. These are often operational targets – sometimes set by external customers, partners, regulators or suppliers, and they are often linked to performance-related pay which drives a sense of urgency and buy-in. But they are rarely strategic, and they rarely take the business forward – as a whole – in its intended direction.
The hallmarks of true KPIs
It’s also important to note that for KPIs to be ‘true’ they also need to be:
a) counted
b) compared
c) Identified as being lead or lag (I’ll cover that in more detail in a future blog!)
Again, this implies a degree of planning and robust thought before simply coming up with some target figures. Benchmarking data is needed first – perhaps from an industry benchmark or from the business’s own performance history. Comparator data is also required, as is a threshold of acceptability (such as the popular Red, Amber, Green status) that shows whether the KPI is being delivered within an acceptable threshold or falling short. It is necessary to set KPIs, but only as part of a structured strategic planning process and at the right stage.
What this means for businesses
The first step is to look at what your business is trying to achieve. This is your starting point to articulating your strategy and organising it in a way that allows you to put your purpose into action. Once you have a clear and defined business strategy in place, you can look at implementing measures that will help to assess whether or not your efforts are working, and whether or not you are achieving what you set out to achieve.
Practical steps to take
Now is the time to take several steps backwards! Rather than launching into a series of operational planning sessions with ‘floating’ KPIs and a long series of targets, objectives and goals, ask yourself why you are actually setting KPIs in the first place. What are you trying to achieve? What is your business strategy? Could you yet define it – and, if you can, have you written it down and sought agreement from other decision-makers for a consensus view?
The trick to success with business strategy is to work through each stage in the right order, systematically, and with thought and care. When you follow a process and a structure, you get better results, and minimise waste, stress and time!
The Intrafocus Strategic Planning Process (SPP) is proven to work for businesses of all sizes and across all industries and sectors. Take a look at the online SPP course in the Intrafocus Academy
