In the previous part, “Describing Strategy”, we discussed how strategy can be described. A description alone, however, isn’t enough. Like the adage “what gets measured gets done” says, Kaplan and Norton believe that an organization has to make its strategy measurable to be able to implement it.
The next step
An organization that has drawn a clear strategy map, and has made its strategy concrete and tangible in goals and/or success factors, has fulfilled an important condition to make strategy measurable. The next step is to provide critical success factors (clustered per perspective) with accompanying indicators. When a critical success factor has been provided with a clear description during the first step, generating its accompanying performance indicators is much easier.
Making the translation clear
Nevertheless, it requires a lot of work to translate every critical success factor into just a few indicators. It turns out to be a difficult job to develop a set of indicators that can monitor the progress towards achieving strategic goals. However, it’s worthwhile to take on this challenge. The SMART KPI Toolbox can come in useful here.
Performance indicators advantages
- They focus attention on things that matter.
- They clarify the performance of a department or organization at a glance.
- They show trend-based positive or negative developments.
- They support decision-making with hard data and quantitative information.
- They give insight into which success factors need corrective action or improvement.
- They stimulate a result-oriented environment.
When is an indicator suited to its task
There are clear benefits to using performance indicators. When is an indicator suited to its task so that you can take advantage of those benefits? To design a qualitatively good indicator, first you have to make sure an indicator has the right components. An indicator comprises the following parts:
- The subject you’re measuring;
- The standard that indicates what we want to know about the chosen subject;
- The norm that describes the target performance.
Indicators have to be relevant!
A measurement could be the most accurate thing in the world, if the subject isn’t relevant, the measurement is useless. Information has to be relevant. The goals and critical success factors of the Balanced Scorecard have to be relevant. In practice, on closer inspection, there’s a distinction between internal and external relevance.
Different perspectives on relevance
For the train system, average punctuality is internally relevant; this could be a target. For the commuter, the so-called traveler’s punctuality on their daily route is more relevant. The first task when developing indicators is tracing the relevant measurement subjects. In a follow-up track, indicators can be visualized using a dashboard.
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