Mapping your business strategy to KPIs: A simple four step process
KPIs set benchmarks to measure progress to achieve corporate or business strategy. KPIs can be developed for service contracts, performance management, contract management and supplier performance. Without KPIs you risk losing focus, not achieving business objectives and not being able to demonstrate your value to management and stakeholders.
Here’s how to effectively capture your business strategy and map it to KPIs using a simple four step process.
Step 1: Strategic business research and discovery
There are various ways of commencing your journey of business strategy development (eg SWOT analysis). However we prefer this simpler approach:
- Understand the current arrangements. This includes have a fundamental understanding of your current policy and processes. How do things work now?
- Benchmark your current arrangements against the market and other companies. This doesn’t necessarily need to be extensive but will help understand where there are opportunities for improvement.
- Engage with the divisions and consumers of the service to understand what their needs are to support their business. You may find for example, that the service needs to differ between divisions.
- Obtain senior management’s view of the organisational imperatives for the service. This may include speaking to the CFO and/or CEO.
- Perform a gap analysis. Contrast the current arrangements with what you now understand from points 2 – 4 above identifying where there are differences from best practices, divisional needs or organisational imperatives.
Step 2: Develop your business strategy
Here you should be able to document what you perceive are the objectives of the service for the foreseeable future. Examples include:
- reducing costs
- reduced environmental footprint
- improved quality of service
- minimising lost productivity
- contributing to driving regional sales
Next, consider each objective and define what factors will be critical to achieving the objectives. These can be ongoing or project/initiative based. For example, reducing costs may require:
- obtaining increased visibility of expenditures and consumption (data and reporting)
- benchmarking of costs
- development or rewriting of policy
- increasing compliance with policy
- renegotiating or market testing supplier deals
- improving management processes
Pull all of these together and start setting priorities. As you will see from the simplistic examples above, all of the objectives and critical success factors need to be seen in conjunction with one another.
Now you are ready to go back and start seeking management endorsement for your draft strategy – a critical step. Note that you might need some business case details here for some of your initiatives – particularly where costs are to be incurred or unpopular changes are to be made.
The strategy will also need to be articulated in terms of the actions, timelines and responsibilities (the ‘plan’) either prior to or post management endorsement.
Some useful tips:
- When determining objectives, try to think how your stakeholders would characterise success, or even more importantly failure, of the service or your impact on the service in say three years’ time.
- Keep the objectives and critical success factors to as few as possible – only include what is important to your stakeholders.
- Always approach senior management first before approaching other staff. You don’t want to set expectations with staff that subsequently can’t be met.
- Don’t overcomplicate it. Excluding the business case details, the strategy could be as little as 2 pages.
Step 3: Define your KPIs
Now it’s time to articulate a measure for achievement against each of your objectives or critical success factors. Far too often there is too much reliance on cost because it is easy to measure. Staff satisfaction is also often used but with little thought in terms of linkage to strategy (objectives and critical success factors).
There are obviously numerous measures depending on where you focus. A couple of simple methods are outlined below to make this a little easier.
- Achievement against deliverables or implementation of initiatives is a simple measure with reporting conducted on a status basis until complete.
- Expert opinion is an undervalued way of obtaining valid, indicative performance information across a range of areas. When combined with comparisons to previous periods (trends) it can be particularly useful. Examples might include:
- survey users of the service on the service provider’s compliance with their service level agreement (SLA) (would require educating them on the contents of the SLA)
- survey managers on whether staff productivity has improved, deteriorated or remained the same.
Tip: Don’t over-survey your staff. Administer one survey and do it perhaps on a sample basis, say six monthly. Always seek their approval to participate beforehand; it will improve perceptions and response rate.
Step 4: Monitor and measure
While this should be self-evident, you will want to make sure that you are monitoring and measuring your KPIs and analysing how your KPIs measure up (or don’t) to your overall objectives. Monitor what the results mean and respond accordingly to ensure your strategy is delivered and you keep your stakeholders informed and on-side. If you find you can’t measure them, delete them or change them.
Application to your service contract
When implementing KPIs, consider their ability to control those things that influence the results. Where they don’t have full control over the outcome (eg compliance to policy) trend measures may be better (such as % reduction in non-compliance).
When linking incentives to KPIs some suggestions include:
- Don’t just withhold money (penalise) where they don’t have an opportunity to factor this risk into their fees, ie ask them to nominate an amount at risk in their fees where only penalties are intended
- Consider bonuses for performance above expectations as well as sanctions
- Wherever performance is linked to dollars the arrangements need to be well developed and implemented to avoid souring the relationship.
- Linking performance (hurdles) to extension options of the contract is another methodology less prone to dispute.
- Consider having the provider attach a component of their fee (again at risk) to promises such as implementing key parts of their service or achievement of milestones or other commitments.
It’s not always easy linking your KPIs to your strategy but following the above process will ensure your strategy isn’t driven by perceptions or what might be relevant to other organisations. It will also avoid being trapped in operational issues at the expense of what is important for your organisation.
Consider these final tips in order to facilitate long-term success:
- Set a process in place in order to regularly review your organisation strategies and KPIs on an annual basis
- Reward achievement against the KPIs, including results delivered by your service provider or even rewards for you and your staff for seeing it through.