By Talita Queiroz
In an increasingly competitive market, companies should recognize the importance of measuring their performance, not only to keep them running but also to grow effectively and profitable.
Luckily, companies can count with a multitude of management tools to assist them in this task, where the best approach/tool will depend on how much effort the company is willing to spend in planning, analyzing, and reviewing results. In this piece, we will go over the basics of Key Performance Indications (KPIs), one of the most popular concepts in the corporate environment.
KPIs are nothing more than the establishment of the most relevant indicators to analyze the performance of a company, a project, or even a person, translating strategic goals into measurable results. Also, it enables the company to track results, analyze the historical performance, and link results with facts. There are two levels in which KPIs are applied, organizational level and or individual level.
In the organizational level, companies can apply KPIs to measure, for instance, margin per sales, margin per product, revenue per employee. It could also be used to calculate the viability of specific projects, such as cost per project, return on investment (ROI) and capital gains. At this level, individual contribution is considered to calculate results, but it is not the purpose of the analysis.
At the individual level, KPIs measure people’s performance and their alignment with the organizational objectives, such as sales per salesperson, productivity, number of working hours per employee. The trick here is to ensure that these indicators support the organizational goals.
Let’s assume a company wants to increase its brand awareness. A good organizational KPI could be the number of sales to new clients, and the individual one could be the number of new clients per salesperson, as detailed in Figure 1. Therefore, the individual becomes responsible for the outcome, sharing the same objectives, but on a small scale. If each individual achieves his/her goals, the company will reach the number of sales for new clients.
The main purpose of this exercise is to ensure the strategic goals are unfolded into key indicators, aligning organizational and individual goals. It is important to train people in the process and provide employees with tools to achieve their targets, hence the company targets. Robust KPIs will provide predictability and stability of results.
Talita Queiroz is a business consultant at Fernandez Young LLP and assists clients in improving their performances through KPIs. Due to her training and experience, Talita also works with Strategic Planning, Business Plans, Research, Financial Analysis, and Process Modelling.