What Exactly is KPI Alignment?September 20, 2011 by Stacey Barr
KPI alignment is critical for successful strategy execution and lasting performance improvement. What exactly should KPIs align with, and why?
According to Dictionary.com, alignment means “Arrangement in a straight line, or in correct relative positions.” For KPI alignment, the second part of this definition fits. It means that all KPIs or performance measures within an organisation correctly relate to one another.
These relationships between KPIs make it possible for everyone to see how they contribute to the organisation in the best possible way to excel at what it exists to do. And there are three types of alignment that are important to understand.
The first type of alignment is to Strategic Direction…
If you’re going to align your KPIs to anything, it has to be strategic direction, the priorities for the organisation to improve its capacity to deliver its mission and fulfil its vision.
So at the corporate or strategic level, this means that KPIs exist to monitor the essential performance results implied by the vision and mission (assuming they’re not just motherhood statements), as well as the current strategic goals or objectives (or whatever you call them).
For a national sports agency, their mission might in part be to increase participation in sport. A KPI aligned to this result might be “Total proportion of population participating in sport at least weekly”. (If you’re thinking, “that’s not measurable”, you’d be wrong. The data comes from a national recreation and sport survey, and census figures for population.)
Tip: A lot of strategic goals are not measurable, so make sure yours is written in measurable language by following this recipe for writing a measurable goal.
The second type of alignment is to Business Processes…
When you talk about aligning KPIs, you can’t not talk about cascading them too. And, of course, the cascading has to maintain the alignment.
The way that corporate strategic goals and the mission and vision are achieved is through the operations of the organisation. And, which may be surprising, operations don’t happen via the organisation’s structure but rather by its end-to-end business processes. A business process, like delivering a service to a customer, can involve many of the organisation’s departments or business units.
Aligning KPIs to business processes means three things. Firstly, the business process has KPIs that monitor the most important outputs that it exists to produce. Secondly, the business process has KPIs that monitor its greatest influence in support of the results the organisation exists to achieve. Thirdly, it has KPIs that monitor the results of critically important steps in the business process, the in-process drivers of its outputs.
If Cash Flow is a strategic KPI for an organisation, then the invoicing process has a big impact. A process output of invoicing that impacts Cash Flow is timely payment of invoices, which might be measured by Debtor Days or Percentage Invoices Paid On Time. A critical step in the invoicing process that impacts on-time payment is itemising the invoice. If that’s not done accurately, the invoice likely won’t get paid. So an in-process KPI could be Percentage Invoices With Errors.
Tip: Follow this example of how to meaningfully measure a business process of billing in a freight company, with a strong customer focus.
The third type of alignment is to Business Units…
Organisations that don’t yet understand its business processes are not ready to align KPIs and performance measures to processes. So instead they’ll align their KPIs to business units, or the departments or functional areas demarcated by the organisational structure.
When KPIs are aligned to business units, it’s similar to aligning them to processes: the business unit has KPIs that monitor the most important performance results that it exists to achieve, as well as KPIs that monitor its greatest influence in support of the results the organisation exists to achieve.
If it’s the Human Resources department, their performance results might include fast recruitment of staff into vacant positions, staff have all the skills required of their roles, and – given a strategic priority to improve organisational culture – staff are fully engaged with the organisation’s purpose. If the HR department’s KPIs and performance measures are designed to monitor those performance results – and any other results that support these – then their KPIs are aligned.
Tip: It’s important to treat support functions a bit differently to find their alignment to the organisation’s purpose and strategy.
But there are a few things NOT to align KPIs with…
All too often people will look for KPIs before they know what the performance results are that matter. Measures for measurement’s sake is a waste of time and effort and attention. If your rationale for deciding to measure something is that you have some available data, or an industry benchmarking report, or a list of KPIs related to your functional area that you downloaded from a KPI database, hit the brakes.
The common underlying theme for any kind of KPI alignment is that you align your KPIs with deliberately chosen performance results. Spend time working out the performance results to align KPIs with, before you worry about what the KPIs themselves will be.
The power of having KPIs, and the power of having those KPIs aligned with the organisation’s strategic direction, is that it pulls everyone and every process within the organisation together, so you spend the least amount of time and effort to achieve its goals and fulfil its purpose.
TAKE ACTION: The tool I use with my clients to make it tonnes easier to align KPIs to strategy and to business processes or business units is the PuMP technique called Results Mapping which is the first step in the PuMP Process. Its power is in the way it puts a waffly, weasely strategy into plain-English result statements, and shows the alignment of these results from top to bottom. Then, when you design measures or KPIs for these results, your measures are automatically aligned too.
Connect with Stacey
Haven’t found what you’re looking for? Want more information? Fill out the form below and I’ll get in touch with you as soon as possible.