Performance metrics

Corporate performance metrics describe results of organizational activities. They often have target levels of desired performance.

Choosing performance metrics

To develop performance indicators -

  • Indentify important activities or ‘business processes’
  • Trace links among activities that drive value for Intended Beneficiaries of the organization
  • Define results for tracking operational management, compliance requirements, and strategic impacts
  • Design or select measuring processes, data sources, and standards of performance
  • Set targets or benchmarks against which to check results

You need to know how the organization creates value for its beneficiaries. For example in the case of a business this would be a well described ‘business model’. This helps with the first two aspects.

The business model explains how the business makes money.

Many organizations choose metrics because they are fashionable in a particular industry. Some stay with indicators for which they have data. Others use metrics that give a sense of precision. In some cases, this gives a false confidence.

Corporate performance metrics or
key performance indicators?

So called ‘key performance indicators’ or KPIs include statistics such as

  • Number of new orders
  • Cash collection efficiency
  • Return on investment (ROI)
  • Student graduation rates
  • Crime clear-up figures.

There are many others. Most measure aspects of efficiency and effectiveness of the organizations concerned.

The hope is that KPIs show progress in executing strategic plans. This means tracking activities that, if not well done, may undermine this progress.

For a collection of key performance indicators for use by management see KPI Library.

Managers face a great array of so called ‘key performance indicators’. Instead of this mass of detail, they need a few important measures. They need to know how the organization is delivering value to the Intended Beneficiaries.

The description ‘performance indictor’ is more accurate in most settings. The ‘key’ in front of performance indicators is in danger of losing its meaning.

No manager wants to see his or her activities as not ‘key’ to the success of the organization. If all metrics become 'key', then none of them is! All performance measures or indicators creep under the label ‘key’. So, no one can separate everyday performance measures from key performance measures, or KPIs. The KPIs are presumably those requiring most attention from managers.

There is another more serious issue involved!

Metrics for managers and metrics for governors

Managers and governors need different metrics.

Managers use various performance metrics for guiding operations throughout the enterprise.

Above the management, there is another type of person. The managers are accountable to these people. These people need different performance indicators. These are the members of the governing body. In most cases, they are not responsible for managing operations of the organization. They ensure that the organization serves the interests of the Intended Beneficiaries. Seeing some Management Performance Indicators may aid their judgments about the organization’s performance. Their focus is on Beneficiary Performance Metrics, or BPMs.

These BPMs measure what the Intended Beneficiaries want to know about their organization. Thus, 'turnover' is such an important company MPI that it ranks as a KPI. It does not rank as a BPI. Shareholders are not as interested in turnover as about profits, earnings, dividends. These are every company's BPMs and I would argue are more significant than any KPI.

Most organizations do not acknowledge the difference between what governors managers need to know. There is a risk that managers' views will trump those of Intended Beneficiaries.

The organization may serve the managers' interests rather than the shareholders, students, patients, etc. This can happen even with the mountains of regulatory paperwork.

I have explained more about these views of governance at Organizational Effectiveness.

Return from Performance Metrics to Corporate Objectives.

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