How much has already been said about staff motivation systems! And, probably, only a lazy or simply not interested in this topic person did not hear about the KPI methodology, which gained a huge number of adherents around the world. What is it and what are its features, we will tell in this article.
The essence and concept of KPI
Every self-respecting representative of the HR service, marketer, manager and just an employee of a prosperous company at least once asked the question: “What is KPI?” A fairly new concept in post-Soviet commerce, which has rapidly gained momentum and has taken up a deserved and impressive niche in the organization of work.
Key KPI indicators (Key Performance Indicators) are the most important coefficients that determine the degree of effectiveness of not only business in the market, but also the performance of its individual elements (these can be various projects or grouped representatives of various services at the enterprise).
This performance indicator is good and popular because it has high flexibility and relevance, so it can be worked out in detail for specific strategic plans of a commercial organization. And consequently, to fully reflect the degree of expediency of introducing its individual elements.
The Role of Key Performance Indicators in Modern Management
KPI indicators in today's management system, provided that they are used correctly, can show the compliance of individual business elements with the strategic plans of the business entity as a whole. In other words, this indicator will be able to assist in determining the degree of management effectiveness in all its manifestations.
Since the modern competitive market does not allow individual business representatives to relax (they have to increase the pace, introduce innovative projects, improve the quality of their own products and services), this indicator is simply necessary.
But do not forget: Key Performance Indicators specifically indicates the effectiveness of the chosen strategy, which means that with its help it is impossible to determine the correctness of individual technological processes, it can only assess the long-term perspective of the intended path.
KPI Varieties
KPI performance indicators (examples of applications which can be found in any business), like other absolute coefficients, can be classified according to various criteria. To begin with, it is important to understand what they serve and what needs to be measured.
So, they can be divided into cost and non-financial. The first are based on budget indicators and are an integral part management accounting enterprises. Non-financial ones can be divided depending on the purpose: they relate to temporary KPIs (examples are timelines for performing a particular work, delivery of products broken down by intermediaries), or high-speed ones (productivity rates).
Depending on the goals, the coefficient can be normative (focused on the short term) and strategic (covering the feasibility of the business as a whole).
Performance Interactions
What is KPI? This is not just a single coefficient showing the effectiveness of a project. This is, first of all, part of a balanced system, which should work smoothly and convey information to the end user in an accessible and understandable way.
It is important for managers in this way to relate key data to each other so that they can in their entirety show the degree of interaction of operational activities with the strategic goals of the business and, accordingly, the feasibility and level of implementation of the latter.
Indeed, each time when setting a particular goal, we determine not only its executor, but also direct methods, which are extremely important to be carefully selected.In other words, the manager must set qualitative and quantitative priorities, among which are the cost of the project, the timing of its implementation, and others. For this, we need KPI indicators, examples of which can be found in every successful business.
Staff motivation
But let's talk about the closest to many of us - how can this ordinary coefficient affect a regular office employee? What is KPI and how with its help experienced businessmen motivate their employees? Everything is very simple.
This is the nature of human nature - staff will work more efficiently and with greater productivity if the level of their work is supported by material remuneration. Therefore, the HR policy of the enterprise often resorts to the constant measurement of KPI (examples of such implementations can be found on any business entity with a share of foreign capital) of employees.
Why does this work, and also successfully? Because, firstly, in this case, any employee is guided exclusively by his own result, secondly, this system is fair and understandable to each employee, and thirdly, it is easy to manage in practice.
Key Performance Indicators
It is clear that there is no need to constantly measure the appropriateness of each element of the operating activities of the enterprise. Strategic management based primarily on a number of key points, for which KPI-performance indicators are determined.
For each business, the main points will differ, but nevertheless, in order to choose a number of the most important of them, modern managers are guided by a number of criteria:
- The key indicator corresponds to the direction of the main economic activity.
- It meets the main strategic goals of the company.
- The indicator should easily give in to management, but at the same time it needs to exert its influence on the business.
- It should possess such qualities as clarity and comprehensibility, since the segment of personnel that will be responsible for it is obliged to clearly monitor the cause-effect relationship in the dynamics of the coefficient.
KPI effectiveness as a set of principles
If some kind of system is introduced at the enterprise, then it should be fully justified by the strategic management of the company, and efficiency ratios are no exception. Therefore, Western theorists have long come up with a set of principles, only corresponding to which a business can be adequately evaluated both from the side of operating activities, and in a more thorough aspect.
So, first of all, when achieving a common goal aimed at the growth of a key efficiency coefficient, the principle of partnership should be observed between employees. And this means that each of the team members needs to remember not only about themselves, but also about the other members. This also implies the second principle - focus on the final result (in other words, the staff should put maximum effort into a single channel).
We also do not forget about strategic goals, which means that the principle of matching operational activities with key business objectives is no less important. And, of course, the last principle is motivation. After all, few can call themselves an enthusiastic volunteer.
Efficiency scopes
KPI indicators can be used in the context of various aspects of the company's business. At the top hierarchical level, as you might guess, there are efficiency and appropriateness factors for the business as such. These include the dynamics of financial and management reporting.
In order to evaluate the activities of each structural unit or business process separately, it is possible to introduce performance indicators individually for each area of activity - this is another area of its application.
The role of KPI in a modern management system
Today, few people remember the planned approach that was so popular a couple of decades ago, which all production workers resorted to to achieve the desired result. What is KPI for modern management representatives? Yes, this is a kind of planned approach in a slightly different, more modern processing.
If the KPI measurement mechanism at the enterprise is clearly debugged, the algorithm of not only bonuses and rewards, but, in turn, penalties for not fulfilling the tasks, is correctly designed, then this system can even be called ideal. But, as far as we all know, in practice, nothing perfect happens. Therefore, one can only hope that once in the post-Soviet market the perfect management system will be formed, which will lay the beginning of a new era, focused primarily on results.
Advantages and disadvantages of the system
But we are not aiming to talk about how KPI performance indicators are ideal and easy to use.
Why is such a control system bad? Well, first of all, often management among achievable goals without fail sets such tasks for the staff, which is almost impossible to achieve. This dilutes the positive dynamics of the growth of the coefficient of efficiency, which saves the company money by reducing bonuses, but at the same time also suppresses the motivation of the employees themselves. And in general, the share of each employee is so small in the overall KPI summary that some of them, unfortunately, go unnoticed.
But it’s better to finish this review on an optimistic note. It should nevertheless be remembered that this management system allows motivating an employee as much as no other before her. The employee knows what to strive for, and has an idea of what awards await him for achieving his goals. And what could be more important in building a corporate business?
