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Using Key Performance Indicators to Maintain Strategic Focus
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Spreadsheets have been around since the late 1970s. They were an instant sensation. Over the years, spreadsheets have evolved and matured, but the basic form and substance of spreadsheets has hardly changed. While new features and capabilities continue to be added to spreadsheets, for the most part spreadsheet technology has reached a plateau. This is typical of a highly successful product. However, it is becoming clear that new approaches and paradigms should and are beginning to emerge.
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Because a company cannot be all things to all people, focusing on a particular area of expertise is essential in maintaining a competitive edge in today’s marketplace. Corporate Performance Management (CPM) provides visibility into how well a company is maintaining its strategic focus. Developing a corporate strategy is a necessary step for a company in defining who it is and where it fits in the market. Once a strategy has been defined, a company must understand how well it is executing that strategy over time. Key performance indicators (KPIs) allow a company to see in what areas it is executing well, and what areas require improvement.
Before one can begin to measure performance, there must be an understanding of the company’s strategic focus. There are three general strategic focuses a company may employ and they are described as cost-, product- or customer-based. A cost-focused strategy emphasizes supplying a standard product that meets many customers’ needs without customization at the lowest cost possible. A product-focused strategy includes custom or niche products or specialized services delivered to its customers. Customer-focused companies place their emphasis on world-class customer service.
To effectively measure corporate performance corresponding to its strategic focus, KPIs should be created. These KPIs are metrics of how well the company is performing, and can be at the enterprise level or specific to departments. KPIs should contain both lagging and leading indicators as it is important for the business to know how well and in what areas it has performed in the past, while recognizing the significant value in understanding how business decisions today will impact performance in the future. Lagging measures indicate the state of the company today, such as balance sheet data, customer retention rate and market share. Leading measures forecast future performance, such as customer satisfaction, training budget and time to market. Each strategic focus has KPIs that are beneficial specifically to that type of focus. Figure 1 lists some of the more important KPIs for each strategic focus.
Figure 1 – Key Performance Indicators by Strategic Focus
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