Introduction
The saying attributed to many recognized management and quality gurus – “If you can’t measure It, you can’t improve It” – is a widely accepted truism articulated Incessantly by leading companies in today’s constantly-changing economy. This adage means that businesses incapable of measuring performance (at all levels) will generally be unable to understand and successfully manage their business health and make the correct and timely decisions to ensure the attainment of near and long-term goals and objectives.
In the digital transformation environment, companies can no longer include traditional financial measures in their business intelligence business performance reporting. Performance-focused businesses need to track non-financial actions such as the speed of response and product quality; externally focused means, like customer satisfaction and brand preference; and forward-looking proposals, including innovative product development and monetization, etc.
Determining what to measure, based on what drives a company’s success, is just as vital as the actual act of measuring. If a company is not measuring relevant and meaningful values, they may as well not measure anything at all.
Key Performance Indicators (KPIs) is the ‘tool of choice’ to determine what to measure to improve decision-making, minimize risk, and uncover insights that may have never realized without the use of a structured business intelligence solution.
“Not everything that can be counted counts, and not everything that counts can be counted.”
Albert Einstein
KPI Definition
Key performance indicators (KPIs) are measurements of the improvement or deterioration in the performance of activity critical to the success of a business and:
- Consist of a target, a set of ranges, or both, which measure how well a company is achieving its goals and objectives and describes in both quantitative and qualitative terms.
- It can be counted and compared and presents evidence of the KPI success degree over a specified period.
- Evaluate the success of an organization or a particular activity (such as business unit, projects, programs, products, and other initiatives) in which it engages.
A Key Performance Indicator (KPI) is akin to Key Performance Measure, Performance Measure, Measure, or a Metric.
Managing business performance with the use of KPIs consists of:
- Setting targets for the desired level of performance and track progress against the goals.
- Improving leading indicators that will subsequently drive lagging indicators. (Leading indicators are precursors of future success; lagging indicators show how successful the organization was at achieving results in the previous periods.)
Selecting the right KPIs will depend on the company’s industry and which part of the business is to track. Generally, individual business units will use dissimilar KPI types to measure success based on specific business goals and objectives.
KPIs measured with the use of an integrated Business Intelligence Dashboards that visualizes the organization’s performance metrics, insights, and trends.
Business Intelligence Definition
Business intelligence (BI) leverages software and services to convert corporate data into actionable information that supports strategic and tactical business decision-making. BI provides historical, current, and predictive views of business activities. Standard BI functionality includes reporting, online analytical processing, analytics, data mining, process mining, complex event processing, business performance management, benchmarking, text mining, predictive analytics, and prescriptive analytics. BI supports the handling of large amounts of structured and unstructured data to identify, develop, and create new strategic business product and services opportunities.
Business Intelligence (BI) Solutions – Dashboards
BI solution dashboards solutions support the effective creation, management, and analyses of corporate KPI-based data. These solutions provide the functionality to visualize and comprehend data from KPIs that represent multiple areas of a business in an integrated and centralized format, with drill-down capability.
BI dashboards value is the provision of faster and more accurate organizational data collection, instant reports on performance, and user setting of variance alerts while simplifying real-time reporting.
The key considerations in creating a BI dashboard include:
- Can the panel be personalized to specific end-user audience business and technical requirements?
- Is the dashboard designed with an intuitive user interface and navigation?
- When providing the drill-down capability, does the dashboard provide sufficient and appropriate additional information?
- Have role-based security access permissions been set-up?
- Is the balance between current and historical data correct?
- Visually, are mission-critical items highlighted and presented in an acceptable format?
- Does the dashboard provide user-defined alerts for positive and negative data and information variances?
The foremost objective for incorporating KPIs in business intelligence reporting is to enable the management team to assess the approved corporate strategies and potential to succeed objectively. KPIs viewed in isolation from business strategies, and goals or vice versa typically fail because of a lack of supportive corporate data and context from internal and external sources.
Gartner identified the leading BI and analytics vendors in its 2017 Magic Quadrant Report, including Microsoft, Qlik and Tableau as leaders.
”What gets measured gets done.”
Peter Drucker
KPI Characteristics
Successful KPIs characterized cover:
- Succinct and clear
- Aligned with business strategies, goals and objectives
- Relevant
- Measurable
- Actionable
- A right mix of leading and lagging KPI’s
- Recurrent
KPI Generic Examples
Generic examples of business KPIs include:
Efficiency
- Lower inventory days on hand to reduce storage costs.
- Reduce waste.
- Streamline business processes / Improve staff productivity.
Growth
- Improve profitability.
- Improve wealth, measured by business equity.
- Increase sales, measured by gross and net revenue.
Business Health
- Balance debt and equity levels.
- Maintain inventory levels with trade payables.
- Optimize trade terms to speed up receipts.
Resilience
- Improve profitability to increase interest coverage.
- Mitigate financial risk by increasing equity-to-asset levels.
- Reduce credit risk by optimizing debt levels.
Customer Satisfaction
- Conversion Rate
- Customer Retention Rate
- Customer Satisfaction Score (CSAT)
- Net Promoter Score (NPS)
KPI Identification & BI Set-up
It is essential to identify the factors they can intuitively view, and that will present a compelling picture of what makes the organization successful. These factors (indicators) should fit into and support the overall goals and objectives of the business strategy.
The activities to support successful KPI identification and BI set-up include:
- Understand corporate mission, business model, goals, and objectives.
- Translate corporate mission, business model, goals, and objectives into measurable and actionable measures.
- Create KPIs (and business rules and formulas) to support measurable and actionable measures.
- Identify sources of corporate data to support newly-created KPIs.
- Understand current business processing that will be used to collect, handle, and manage corporate KPI data.
- Configure BI Dashboard with the newly-created KPIs. (Within existing BI or recently engaged in-house of SaaS BI Solution.)
- Test KPI and change as required; Place BI dashboard into production with stakeholder User Acceptance Test (UAT).
Organizations should continuously review whether their KPIs remain relevant over time. Strategies and objectives generally change over time, making it inappropriate to continue focusing on the same KPIs as in previous periods. Equally, more information may become available to management, facilitating reporting of new KPIs that deliver a deeper understanding of the business, or changing the basis of existing KPIs.
