How KPIs can be utilised in an organisation

Background 

Having worked for a relatively big company for many years has made me wonder what actually affects how the co-operation between the departments is working. When the co-operation is less efficient, you can sometimes hear the opinion that it is due to the KPIs. Whether this is the case or not can always be argued, but the fact is that it in practice can be very challenging to define and use an appropriate set of Key Performance Indicators, especially in large companies with many organisational layers.  

This reflection could be said to have been the initial phase of my master's thesis. I wanted to gain a better understanding of how KPIs are utilised in the organisation. Going through all KPIs used in the company would have taken too long so I decided to select a department to investigate what´s going on there when it comes to the use of performance indicators. Firstly I wanted to check that the KPIs existing in the department followed the main rationale, i.e. that these department-specific KPIs are aligned with the business unit´s key business objectives. In addition, I also wanted to get a deeper understanding of how employees in this studied department perceived the use of KPIs and what they would see as important if they were given the opportunity to redefine what performance indicators their department should utilise. 

Performance Measurement  and Management 

In the literature review I concentrated on going through theories related to performance management, performance measurement and the use of performance metrics. It became evident that performance management and measuring performance are critical to monitoring any organisation’s growth and success.  

There were several interesting aspects noticed in the literature review. The importance of cascading and aligning performance indicators was mentioned by many authors. Every part of an organisation should have targets set so that their activities will support the overall targets defined for the organisation. The best way to ensure this is that the concept of cascading is applied. This means that every department should plan how they intend to accomplish the goals set by the organisational level above them. The outcome of this is that a set of performance metrics will be defined that are tailored to those specific activities carried out within that department. In case those performance metrics are set so that they drive behaviour that is not supporting the organisational goals very well, then we say that an alignment problem exists. 

Several authors emphasise the importance of having a performance measurement system that has a clearly designed evolutionary cycle. This means that the performance measurement system should be regularly reviewed and that the organisation has capabilities to reflect on, modify and deploy new performance metrics. If the metrics used in a performance measurement system will not evolve over time, the same behaviour can be expected and it becomes increasingly difficult for the company to thrive in a competitive environment.  

There were also suggestions that this is not something that should take place at the senior management level only but that employees should be asked about the performance indicators they use and how those indicators are impacting their work. This can be referred to as a so-called bottom-up, or internal, approach meaning that there is involvement from all levels of management in this process. Another advantage of considering this bottom-up type of approach is that it creates commitment and better buy-in amongst the employees. 

Conclusion 

The results of the study showed that there was a clear linkage between the performance indicators used by the studied department and the organisational KPIs and this would imply that there was a good level of alignment. A number of employees representing the case department were interviewed to collect views and opinions on the performance measurement system. The outcome of conducting this type of bottom-up review of the existing performance indicators was that novel improvement ideas could be identified. Those ideas were documented and will become valuable input for the evolutionary cycle that the performance measurement system should have to enhance the development of the organisation and drive innovation.

Biography

Jan Sundholm is the main writer. Having worked for a technology company for more than two decades has given insights into various disciplines like sales, project and product management. With an engineering background, there have been a wide variety of technical challenges that have landed on his desk. Continuously exploring new fields and being able to come up with solutions to customer problems have always been important drivers in his career. Out of work-life, Jan enjoys travelling and all kinds of outdoor exercises.