How to measure an organization's performance? - Performance indicators
To survive, an organization must perform. And to thrive, it must be able to fully assess its organizational performance so that it can identify opportunities for improvement, implement action plans to seize them, and track the impact of those efforts.
Why use performance indicators?
Organizational performance indicators make it possible to evaluate the performance of the organization according to different aspects. By collecting this information, it becomes possible to paint an accurate picture of the organization's health and make informed decisions to constantly improve it. And, as we all know, you can't improve what you don't measure!
Here are 4 types of indicators to measure organizational performance:
- KFI — Key Financial Indicators
- KPI — Key Performance Indicators
- KKI — Key Knowledge Indicators
- KBI — Key Behavioral Indicators
KFI — Key Financial Indicators
The first tools for developing an organization are the Key Financial Indicators (KFI). These are used to assess the financial health of the company to ensure that it is creating value to stay alive.
The 5 main financial performance indicators are:
To improve its financial health, the organization can then implement improvement initiatives targeting one or another of these financial performance indicators.
Strategies such as these are used:
- Market capture
- Technology integration
What are the limits of financial indicators?
Essential to the survival of an organization, KFIs are indeed the main decision-making tool in the early stages of its evolution. However, they offer a strictly financial view of the organization and its performance, which hampers the possibility of improving operational performance.
Furthermore, although they can now be analyzed more frequently than in the past (traditionally on an annual or monthly basis), financial indicators only provide visibility on the company's results. The whole dimension of the processes that allow acting on the financial objectives and their results is overlooked.
KPI — Key Performance Indicators
In an effort to push its financial limits, the organization implements best practices to maximize its operational potential. Among these best practices and methods of optimizing operations, there are well-known names such as:
What are the KPIs for?
To ensure the performance of these best practices, Key Performance Indicators come into play. KPIs allow for quicker and more efficient monitoring of operational excellence and the adequate use of good practices than financial indicators (KFIs).
Here are some examples of KPIs that are known and used in the vast majority of companies:
- Service rate
- Customer satisfaction
- Human productivity
- Overall efficiency rate (OER)
- Re-work rate
Why don't KPIs guarantee better performance?
With Key Performance Indicators to measure operational performance, best practices and process-based approaches to performance improvement have multiplied.
This gives companies the ability to rapidly scale up, but by constantly adding layers of processes, they are also adding immense weight on their employees and managers in the hope that it will all stick and that teams will benefit on a daily basis from all these best practice deployments...
- Jean-Philippe Raîche, CEO Europe/Asia, Proaction International
KKI — Key Knowledge Indicators
KKIs - or Key Knowledge Indicators - correlate knowledge and worker engagement to assess available human performance.
More precisely, these indicators focus on the workforce, the teams that apply the processes on a daily basis. They help determine whether the people who carry out the company's core business have the technical knowledge to sustain the organization.
Some areas of knowledge to be assessed include:
- Technical knowledge
- Procedural knowledge
- Organizational knowledge
If each employee possesses the required level of theoretical and practical knowledge for their activity, those who manage them must also know their role in driving the operational and financial performance of the organization.
KBI — Key Behavioral Indicators
The strength of the organization lies in the managers' ability to appropriate good practices and to implement them on a daily basis with their teams in order to continuously leverage them. This requires great operational rigor and the ability to mobilize teams.
How do KBIs help improve business performance?
It is thanks to managers that organizations are able to generate operational results (KPIs) and financial results (KFIs) that match the organization's potential.
Key Behavioral Indicators are used to measure management behaviors that support improved organizational performance.
By measuring the managerial performance of all supervisors (team leaders, foremen, supervisors, etc.), it becomes possible to act on their skills and behaviors through training, coaching, and monitoring their long-term development.
KBIs measures managerial performance from four perspectives:
- Management Effectiveness Index (MEI)
- Management Skills Index (MSI)
- Active Supervision Index (ASI)
- Management style
- Objective Orientation (O2)
- Considération Factors Index (CF2)
- Organizational Mobilization Index (OMI)
- Personal State Index (PSI)
Performance indicators and organizational maturity
The more mature an organization is, the more depth it has. It is therefore logical that several levels of performance indicators exist to provide information relevant to organizational performance depending on the company's stage of maturity.
Somewhat like an inverted Maslow's pyramid, the stronger and more experienced the company is, the more it can look further and deeper into measuring its organizational performance to make a meaningful impact.
Performance indicators: where to start?
Organizations often start by establishing financial performance indicators (KFIs) before setting up KPIs to optimize their operational performance.
When they are ready to go deeper into measuring their organizational performance, they can then assess their available human performance (KKIs) and set up key behavioral indicators (KBIs). They can then implement and track changes that will have a massive and lasting impact on overall business performance.
Identifying the most important performance indicators for an organization can be a challenge, especially when introducing the concept of management behaviors. Proaction International's coaches and consultants can help you deepen management maturity and optimize your organization's performance.