Tracking  the performance of your organisation

Tracking the performance of your organisation

In the previous article, we discussed the importance of critical success factors (CSFs) in ensuring success of an organisation.  CSFs are defined as the critical areas whose high performance or success is important, or the essential areas of activity that must be performed well if an organisation is to achieve its mission, objectives or goals.

After selecting the CSFs you need to go a step further by measuring whether the organisation is actually meeting those CSFs. This can be done by assigning key performance indicators (KPIs) to the goals to which the CSFs relate to.  KPIs are defined as the tools to measure the performance of an organization.

It’s important to understand the difference between the two terms. The difference between KPIs and CSFs is the difference between cause and effect.
CSFs are those particular areas or issues which are important to the success of an organization and it’s vital for an organisation to pay special attention to these areas since they will determine the present and the future success of the organization.

CSFs are therefore very important for the accomplishment of goals of an organization. For example critical success factors may be related to customers, like good customer service. Good customer service will determine the success of an organisation.

KPIs, on the other hand, are indicators to the performance or they measure the success of a company but they don’t show how to improve or provide the ways to achieve success. They are used to measure performance.

CSFs help the organisation find the areas which are to be improved so that the organisation’s success is assured. The CSF is the cause of the firm’s success or what is required for the firm to succeed while KPIs are the effects of your action.

In other words, CSFs answer the question ‘what should be done in order to be successful’ and KPIs answer the question ‘are we successful’. KPIs are usually quantitative so they will be in the form of a ratio or percentage while CSFs are more of a qualitative nature like ‘what will satisfy our customers.” KPIs require that they be compared to some other data like prior year in order to analyse the performance whereas CSFs indicate what is to be done in order to succeed or what issues the firm should attend to for success to be guaranteed.

Most businesses across most industries will have almost similar CSFs, such as increasing cash flow, increasing sales, improving customer satisfaction, hiring people with the right skills, and boosting productivity. However each business’ KPIs will typically differ from company to company, depending on the business’s strategic priorities and goals.

CSFs and KPIs are intrinsically linked and dependent on each other. After a company has set its vision and strategies, the next step would be to identify critical success factors which are those activities that have to be done to achieve the goal. So while the firm’s overarching strategy sets out the company’s mission and goals, CSFs pinpoint how you will achieve it.

After identifying the CSF, one needs to monitor performance towards achieving the goal, which is done using KPIs. KPIs tell managers whether the goal has been achieved or not, they don’t actually improve performance themselves, whereas CSFs help in improving performance.

We can apply the concept of the CSF and the KPI by looking at an example of a company’s customer service. Good customer service is critical for success. This can be measured by use of two types of KPIs.

A company can measure customer service using a lagging indicator, which measure performance in a period that is past, like “Customer Satisfaction Index %” which measures the satisfaction of the customers but one could also focus on a leading indicator which pre-empts customer service like “Time to answer customer support query.”

Both of these KPIs help the company to identify whether it’s meeting its goal of good customer service. To make the relationship between CSF and KPI effective a company should therefore link the two.

The CSF would be “provision of good customer service” and this can be measured by a leading Indicator related to “the time to answer customer support queries.” If we see there is need for improvement because the indicator is bad then management will have to take an appropriate action plan such as “training sales staff”.

The impact of this action can be measured by a lagging Indicator which is “Customer satisfaction index, %.” By so doing the firm is assured of success because it is measuring its performance towards attaining its CSF using appropriate KPIs.

There are many KPIs that an organisation can use but one has to choose those that the organisation considers important to measure success. Each KPI should be directly linked to a strategic goal to ensure that by achieving the KPI the firm will be meeting its goal.

Choosing the right KPIs is dependent upon a good understanding of what is important for the organisation. What is important depends on the department tracking the performance; finance will have different measures to operations. However, each indicator should measure performance improvement initiatives.

KPIs should satisfy the SMART criteria. Each KPI should have a Specific purpose for the business, it should be Measurable if it has to provide value to an organisation, and has to be Achievable, and the KPI has to be Relevant to the success of the organization, and finally it must be Time bound, the outcome should be for a predetermined period.

KPIs are very critical in tracking performance of a firm. KPIs can be considered as navigation tools that managers use to understand whether the business is on the path to success or whether it has veered off the success trajectory. An organisation therefore needs the right set of KPIs that will shine a light on the key aspects of performance and highlight areas that may need attention.

Our current environment is changing very fast, so businesses need KPIs to quickly assess where the business is against the strategy and make amends quickly and adapt to the changing conditions of the market.

KPIs help in monitoring performance in a fiercely competitive market where tracking of performance is almost in real time so that the firm responds quickly.

KPIs act as key decision-making tools. For KPIs to be effective, organisations should ensure that the KPIs are closely tied to strategic objectives and help to answer the most critical business questions. This is why it is so important to develop the right KPIs for the organisation and avoid choosing non relevant ones.

When KPIs are properly understood and used effectively, they provide a powerful tool to business leaders and senior executives to enable them to make better informed decisions, improve performance, and seek out new and novel ways to gain the edge over their competition.

There are challenges that managers face in coming up with good KPIs. If the firm’s strategy and key objectives are not clear, the tendency would be for indicators to focus exclusively on financial outcomes, which would present an unbalanced and incomplete view of a business’s health due to overreliance on financial indicators only.

Sometimes the measures deemed important by one department might not be viewed as important by others resulting in a conflict as to which indicators are important.

To improve performance organisations try to tie compensation to key targets of performance indicators, which invariably results in conflicts of interest and considerable bias are built into the process of determining and tracking KPIs. The last challenge is that accurately measuring and reporting indicators may be difficult or impossible if the internal reporting system to support them is not in place. KPIs are very key in monitoring performance.

l Stewart Jakarasi is a business and financial strategist and a lecturer in business strategy, advanced performance management and entrepreneurship. For assistance in implementing some of the concepts discussed in these articles please contact him on the following contacts: sjakarasi@gmail.com, call on +266 58881062 or WhatsApp +266 62110062.

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