Strategic Plan Development

Using KPIs to Develop the

Strategic Plan

Agenda

1. KPI – Definition

2. KPI – Opportunity & Objectives

3. KPI – Ten Best Practices

KPI – Definition

• Key Performance Indicators (KPIs) are:

– 1. Quantifiable measurements

– 2. Agreed to beforehand

– 3. Reflect critical success factors of an organization

– 4. Display directional indicators of in-process progress

– 5. Have high correlation as a predictor of success factors

– 6. Are easy to collect and understand

– 7. May be Financial or Non-Financial measurements

KPI – Opportunities & Objectives

• Opportunities & Objectives are:

1. Build a continuous monitoring and measurement process that results in predictable outcomes, reducing deviation outside of control limits.

2. Place less emphasis on month end results because they are an accumulation of daily measurements that were know in real time. Month end results do not present out of tolerance conditions that were unknown to management.

3. Build a corrective action system of indicators that action can be taken on.

KPI – Ten Best Practices

1. Strategy Mapping2. Implementation Strategy3. Performance Measurement

& Reporting4. Accountability

5. The Knows - Prerequisites

6. Characteristics of KPIs7. Defining KPIs8. Eight Step Plan9. Data Collection10. Benefits of a Strategic Plan

using KPIs

KPI – Best Practices

#1 Strategy Mapping

VisionStrategy/Market

Positioning GoalsSupporting Objectives Action Plans

Core Ideology

Envisioned Future

Core Values

Core Purpose

BHAG

Vivid Description

Target Customers

Target Markets

Target Services

Sustainable Competitive Advantage

1.0

2.0

3.0

4.0

1.1

1.2

1.3

1.11

1.12

1.13

How

Why

KPI – Best Practices

Strategy is comprised of the unique set of choices an organization makes, in an uncertain environment, to achieve its Vision, particularly its BHAG.

Strategy is about choices. It is as much about what an organization chooses to be as what it chooses not to be.

Strategic choices must be made in two main areas:1. How to position the organization in the market to achieve the Vision

(Market Positioning Strategy).

2. How to utilize limited resources to achieve that position and the Vision (Implementation Strategy).

#2 What is Strategy

KPI – Best Practices

Strategic choices on how to utilize limited resources to achieve Market Position and Vision.

Provides Work Breakdown in the form of Goals (1 – 3 years), Supporting Objectives (1 year to 18 months), and Action Plans (1 year of less).

Absolutely must be measurable at the Goal and Supporting Objective levels.

Set the level of “stretch” effort required.

Try to keep it simple.

#2 Implementation Strategy

Stretch refers to goals that require significant effort to reach.

KPI – Best Practices

1. Goals: responsiveness and fact-based decisions foster accountability.

2. Tie performance measurement to metrics set in Goals & Supporting Objectives.

3. If you can’t measure it, you can’t manage it!

4. Provide regular feedback

5. “Business Intelligence” know what is happening that may impact your Goal.

6. Design reports that provide frequency and warnings.

7. Monthly executive Plan Review

#3 Performance Measurement & Reporting

KPI – Best Practices

• Single point accountability – only one assigned employee responsible for results.

• Strategy map for each assigned employee

• Ties directly to performance appraisal

• Monthly executive team Plan Review

• Executive Team should manage by exception – focus on what is not working.

#4 Accountability

KPI – Best Practices#5 The Know - Prerequisites

KPI – Best Practices

1. Know Yourself - Look inward for change indicators

2. Know Others – What is the industry doing for benchmarks?

3. Know Best in Class – Forget industry averages they are diluted with poor performers

4. Know the Difference – Gap analysis between top performers and your organization

5. Know the Way Forward – use the Strategic Plan and KPI’s to create the path.

6. Know How You Did It – Make adjustments based on data based decisions, refrain from emotion

#5 The Know - Prerequisites

KPI – Best Practices

Key Performance Indicators have these components:

1. Clearly and specifically defined

2. KPI can be accurately measured

3. The measures can be acted upon

4. Measures are resistant to manipulation

5. The KPIs are kept simple and there are few in number (<10)

6. Each has an accountable individual assigned

7. Define/Predict movement toward an overall goal

#6 KPI Characteristics

KPI – Best Practices

Poor Key Performance Indicator

1. Title: Increase Sales

2. Defined: Change in Sales Dollars

3. Measured: Total of sales by region for all regions

4. Target: Increase each successive month or quarter

5. Lacks specificity, can not be measured, subject to various interpretations

#6 KPI Characteristics

KPI – Best Practices

Good Key Performance Indicator:

1. Title: Employee Turnover2. Defined: The total of the number of full time equivalent employees, who

resign for whatever reason, plus the number of employees terminated for performance reasons, and that total divided by the number of employees at the beginning of the measurement period.

3. Employees lost due to reduction in force (RIF) will not be included in the calculation base.

4. Measured: HR contains records of each employee. The separation section lists reasons and the date of separation for each employee. Monthly or when requested HR will provide Department heads with turnover reports. Measurement and metrics will be presented monthly.

5. Target: Reduce Employee Turnover by 5% per year6. Note: Supports the objective of reduced employee training and hiring

costs.

#6 KPI Characteristics

KPI – Best Practices

KPIs;

1. Are linked to controllable events

2. Are cost effective to collect and compute

3. Must have correlation to the critical success of the company

4. Are leading indicators

5. Must be specific as to Who, What, When, Where, and How

#7 Defining Key Performance Indicators

KPI – Best Practices

1. Must have senior management support

2. Create and empower the KPI management team

3. Educate the team on the goals of measurement

4. The team develops the draft model

5. The team defines the critical success factors

6. The team defines the Key Performance Indicators

7. The team gets approval for implementation and publishes the results

8. Make corrections and adjustments if the indicators are not predictive

#8 Eight Step Plan to Successful Implementation

KPI – Best Practices

• Automate wherever possible

• Use multiple sources of data

• Extract data from QuickBooks, ACT, Etc……

• Keep it simple

#9 Data Collection

KPI – Best Practices

• Balances traditional measures with more forward looking indicators

• Creates an alignment of individual and organizational goals

• Visible accountability

• Promotes a culture of measurement and performance monitoring

#10 Benefits of a Strategic Plan using KPIs