Why KPI's are so important?

Can you run effectively and efficiently a business without KPI’s (Key Performance Indicators)? In other words, can you evaluate if you perform according to your best abilities as a business without them?

The answer is probably no. That is why they are so important. They help every manager to take rational decisions based on facts and not based on intuition. In addition, Key Performance Indicators offer a clear picture for every important section of a company.

Usually Start-Ups & SME’s do not have a complete range of KPI’s. They concentrate only in the financial aspect. However, if you (Start-Ups & SME’s) really want to have a good overall understanding and management of your company, it would be better to concentrate on five (5) basic sectors with their relative KPI’s.

The five (5) sectors are:

  1. Financial Performance KPI’s
  2. Customer Satisfaction KPI’s
  3. Learning and Growth KPI’s
  4. Internal Business Processes KPI’s

These are based on the Balanced Scorecard (BSC) strategic performance management tool (Kaplan R S and Norton D P (1996) “Balanced Scorecard: Translating Strategy into Action” Harvard Business School Press) that helps businesses to monitor and control these perspectives.

The fifth sector is:

  1. Human Resources KPI’s

According to my experience, businesses that have balanced KPI’s based on these (5) sectors and that monitor, control and optimize them regularly, integrating also the vision and mission, have better probabilities to achieve sustainable growth.

When you focus equally on these sectors you manage all the aspects of the company in a better way, avoiding future problems.  For example, think how many companies focus on the financial performance sector, improving the numbers there, neglecting the HR rewards and motivation, having as a result to create problems (in the long run) both in HR and Customer Satisfaction KPI’s.

As a result, every department of a business should have the appropriate KPI’s based equally on the above mentioned sectors. I hope you see what I mean. That is why KPI’s are so important. It is a powerful management tool that when you use it correctly, it leads to a healthy business growth.

Finally, it is essential to say that there are practically hundreds of KPI’s and every Start-Up & SME must create and use the appropriate ones, according to the overall objectives, strategy, scope, industry and market they operate in.

Written by ibbds