Balanced scorecard system has a very simple concept. Its creators, Norton and Kaplan, were the first to include nonfinancial indicators to the list of measures to be evaluated in order to assess business performance of a company. Key performance indicators (KPIs for short) are all important. It is possible to set the right goals and make the right decisions but it is not possible to achieve positive results when evaluating the wrong key performance indicators. Choice of key performance indicators predetermines overall balanced scorecard success. The history of business world knows many examples of balanced scorecard failures related to the wrong choice or the wrong evaluation of key performance indicators.
To begin with, it needs mentioning that key performance indicators are not just measures that demonstrate company progress or regress on the way to implement strategic goals. KPIs represent critical success factors in various environments the company operates in. Balanced scorecard consists of four categories: financial, customer, internal business processes, learning and growth. Logically, each category has own set of key performance indicators which are however are related to KPIs in other categories. For example, such key performance indicator as sales proposals per one customer is directly related to sales growth rate. Employee satisfaction is linked to customer satisfaction as statistics show that the most satisfied employees in the company have the most satisfied customers, i.e. those who bring the most money for the company.
One shouldnt be in a hurry when making a choice of key performance indicators. Of course, there are KPIs collections and ready to use sets. It is OK to use them but one needs to remember that every business is individual and every implementation process of balanced scorecard is individual as well. Something that perfect lease use one company may be hazardous for another, even if the companies are operating in the same market and in the same industry. At the same time it is very useful to refer to KPIs collections. As a rule, key performance indicators are grouped by industries and balanced scorecard categories. For example, if are most interested in financial indicators youll certainly find the most effective KPIs in financial category in such a KPI collection. In case youre looking for key performance indicators for nonprofit sector you should browse such categories as government, public and nonprofit organizations.
What should one pay attention to when selecting key performance indicators? First of all they should be measurable. One should clearly understand how a particular key performance indicator is measured and what they obtained information means for the company. The second most important factor is significance of the selected KPI for the overall performance. This explains importance of setting weights for Paris key performance indicators. For instance, if the company has problems with customer relations the customer category and all customer KPIs should have more weight than those key performance indicators in the learning and growth category.
We should stress again that there are no universal key performance indicators that will perfectly suit all companies. Use as many resources and KPIs collections as you can and choose the best KPIs for your company.