General

The ultimate purpose of KPI's is to drive future performance. The Balanced Scorecard provides the framework for capturing and reporting this performance.

Key Performance Indicators (KPI) are used in performance measurement systems such as the Balanced Scorecard. Examples of KPI's for specific measurement areas include:

There are things that your organization must do right if you expect to survive in the future. These critical areas require constant care and attention on the part of management. According to John F. Rockart in the Harvard Business Review: "Critical success factors for any business are the limited number of areas in which results, if they are satisfactory, will ensure successful competitive performance for the organization."

If you have decided to implement a performance measurement system (PMS), here are six basic steps you will need to consider in designing the system:

1. Bring together all stakeholders; i.e. everyone who has an interest in the PMS. The purpose of this first step is to build consensus on what should be accomplished from the PMS. What are the needs of your organization? A cross-functional team needs to be formed for directing the design of the PMS.

The Basic Foundation Behind a Performance Measurement System

A good performance measurement system can change your entire organization. However, your organization must be willing to accept change. If upper-level management supports long-term improvement and your company is receptive to change, than a performance measurement system needs to be considered. A performance measurement system is based on measuring areas that are critical to your future success.

A Better Approach to Cost Control: ABC

When it comes to controlling costs, most organizations control costs by general ledger account; i.e. they look to their Income Statement. So when you have to cut costs, you look at your expenses and say to yourself: "Payroll is $ 100,000 and utilities is $ 5,000; we can't cut off our utilities, but we can sure cut payroll."

This short-sided approach to cost control often leads to the destruction of value within the so-called value chain. When you cut people, the activities they perform may still be there, but no one's around to perform the activity. So you end-up creating black holes in the organization that destroys employee value. Once you've destroyed employee value, this leads to poor customer service and hence, the destruction of customer value. Now that you've lost your customers, this translates into the destruction of shareholder value. So you end-up destroying value within the entire value-chain: Employee, Customer, and Shareholder.