KPIs and analytics for strategic business objectives

In this article we outline what KPIs are good at, how they drive performance from a business objective perspective, and how they are combined with modern analytical tools to get insights that inform decision-making. At the end, we guide on how to change to a Nordic-inspired KPI-approach.

You are a business manager, board member, business analyst or a management consultant who advise companies on objectives, KPIs and reporting analytics. You may be uncertain on how you can utilise your existing performance tools or you have been tasked to make change to how your organisation work with objectives, measurable results and clarity of the situation today.

Why KPIs

Key performance indicators are simple presentations of important information often in cards with a descriptive label, a numerical value and a unit.

They are simple to use, but often hard to compile when you have several ERP and finance systems. You may have a mix of spreadsheets and systems that don’t reconcile fully and have to do significant regular and manual work in compiling the foundations behind the KPIs.

Executive management and boards often select these metrics to put a leading guide on the wall after thoughtful discussions on how to operationalise your strategy to operational targets. KPIs thus provide a sense of traffic-light or speedometer on the progress of achieving the objectives.

Selecting and improving your KPIs

There are catalogues of KPIs for most industries and departments. You have most probably a good understanding of yours, either from sales, production, finance or HR. ERP systems usually provide key metrics out of the box.

The key here is to have your business as the focal point, and let your strategic objectives set the selection criteria for what metrics to elevate an higher attention. They should also have effect on the employee’s daily work over time, and they should provide meaningful information.

The analyst should dig deeper into what really is impacting your objectives, for instance what is influencing sales, or logistical performance. When you are on track, you can put attention to other metrics, but you should assess the usefulness from time to time.

We think it’s important to be critical to steering solely on metrics, since they by its nature are simplification of the reality. Naturally, that’s where the analyst can supplement decision makers and where the management should be careful to trust simplified presentations as steering tools.

Connect your strategy with KPIs

Strategy is core for performance and is operationalised trough tactics and action. KPIs gives a velocity indicator and can signal if you are on, above or below your specific objective target. The aim of the KPIs is also to be quickly digestible and up to date. Refining, change and presenting these is a moving flywheel and a tool, not an objective by itself. Reporting and analytics are much more useful to make impactful decisions, but the KPIs also have the effect on employees on what the management are paying closer attention to.

When business analytics supports the strategic objective

Industrial manufacturing has a sizable analytic team with large data warehouses. More retail-oriented chains have analysts who work manually. They get unique insight by building business cases and find patterns in the market cycles. They also are efficient in understanding the financial trends. When the KPIs signal alarms it is the moment that the analyst should start to work out an explanation and find root causes. It is crucial that the analytical team is driving the products from a business perspective and not merely administering a data machine. Data science is an exciting topic, but we will not dive into that here.

Modern systems provide KPIs and analytics out of the box, and sometimes it is merely taking the time to understand and learn the systems that is what it takes. Other times, you have to specify and build an enhancement to your analytical tool to get the analytical capability you want.

Unfortunately, analysts are not always decision-makers even though they know the business satiation the most. Thus, it is important that analysts are involved when you transform objectives to relevant KPIs, since they might even be the ones who produces them.

Why changing KPIs, business analytics and harmonisation with strategic objectives should be part of one package

They are all connected. Key stakeholders are usually aware of what is to be done, but the calendar is full. Operations and deliveries take precedence. It is better to make changes to KPI and analytics in a concerted, holistic manner walking the processes from the beginning to the end. At each gateway, you can verify if you are really connecting the process with the objectives and if the measurements in the systems are relevant.

Changing financial reporting is easier since there are industry standards, but when you move through the internal business steps, its often more subjective. The data is often there, perhaps fragmented. Analytical systems might be a shadow of the ERP and not telling the full story. It is only by structuring all the pieces, understand the team deliveries and the objectives that you can assemble meaningful metrics to be presented in the scorecard.

KPIs for the short- and long-term

Navigating competitive markets and industrial production require attention to objectives that move at different velocities. In finance, we can highlight short-term metrics like accounts receivables, and the factory floor heavy equipment may rather focus on long term standard costs including number of cycles in the production lines. Modern ERP have abilities to scorecard such KPIs, but that is just the enablement. We think that the selection of KPIs should reflect both ambitious long-term metrics, and also navigation points on the more risky near-shore environments. The data material should, as strategy and action ideally should, be connected with the different layers of data, that is what’s being produced should directly be related to customer demand, through planning, forecast and sales. KPIs are not driving this, but objectives. Shop-floor persons focus on getting the machines running, improving quality and rapid changes, not a new complex dashboard. You should economise the use of the KPIs also, so it’s not a required yearly excel-task, but use it as a tool when it really provide value.

What we think about KPIs, objectives and analytics

We think the highest value is to combine selected tools and adjust them organisation. We also believe that the best approach is to understand the business processes and what influences the success. Introducing objective driven KPIs is not revolutionary, but implementation and change of culture can be hard. If the KPIs live in spreadsheets, real awareness is the date you update the values. Automating the sales processes to get recent metrics can be costly, with hidden maintenance costs. That’s why we believe you should start from what you have and evolve.

However, if you are having major transformation and reengineer your way of working, then you have to both change management approaches, systems and not start with the detailed objectives, since you have to run a few spins of the flywheel first to harvest insights.

Also, we are convinced that the strategies are the framework, and that on an operational level you improve and refine the working model, and that it’s the managements responsibility to set clear expectations and be cognisant on not overloading the relevant teams with too much burden. Therefore, a stepwise implementation over time is our preference.

Lastly, we believe the most important thing overall is to train new systems and approaches as a team, simulate use cases and collect feedback to adjust either the system or the objectives to be aligned.

Call us today +47 412 555 40 to start your initial assessment of what systems you have, how you can make visibility to the data in your ERP using KPIs and a more training-oriented approach to take the full flywheel of connecting strategic objectives with analytics in practical use.