Bernard Marr - Key Performance Indicators (KPI) The 75 measures every manager needs to know

Bernard Marr is a leading global authority and best-selling author on organisational performance and business success. In this capacity he regularly advises leading companies, organisations and governments across the globe, which makes him an acclaimed and award-winning keynote speaker, researcher, consultant and teacher. He is acknowledged by the CEO Journal as one of todays leading business brains.

Bernard is the author of The Intelligent Company, Managing and Delivering Performance, Strategic Performance Management and More with Less: Maximizing Value in the Public Sector.

Organisations he has advised include Accenture, Astra Zeneca, Bank of England, Barclays, BP, DHL, Fujitsu, Gartner, HSBC, Mars, the Ministry of Defence, the Home Office, the NHS, Orange, Tetley, Royal Air Force, Royal Dutch Shell, among many others.

Prior to his role as CEO of the Advanced Performance Institute, Bernard held influential positions at the University of Cambridge and at Cranfield School of Management. Today, he also holds a number of visiting professorships and serves on the editorial boards of many leading journals and publications including the Business Strategy Series.

Bernard Marrs expert comments on organisational performance are regularly published in a range of high-profile publications including the Financial Times, The Times, The Sunday Times, Financial Management, CFO Magazine and The Wall Street Journal.

Numbers are the product of counting, but there is so much more to life that we cant count .

I dedicate this book to the four people who give me meaning and happiness beyond measure :

My wife Claire and our three children Sophia, James and Oliver

Key performance indicators (KPIs) are the vital navigation instruments used by managers to understand whether their business is on a successful voyage or whether it is veering off the prosperous path. The right set of indicators will shine light on performance and highlight areas that need attention. What gets measured gets done and if you cant measure it, you cant manage it are just two of the popular sayings used to highlight the critical importance of metrics. Without the right KPIs managers are sailing blind.

The problem is that most managers are struggling to understand and identify the vital few management metrics and instead collect and report a vast amount of everything that is easy to measure. As a consequence they end up drowning in data while thirsting for information.

Effective managers and decision makers understand the performance of all key dimensions of their business by distilling them down into the critical KPIs. Not understanding key metrics can often cause anxiety and can hold people back. This book will demystify and explain in simple terms the most important KPIs in use today. It will equip you with the skills to understand, measure and interpret the most important aspects of any business.

You can use this book in two ways: as an essential reference guide that allows you to look up the KPIs you want to understand and learn more about as and when you need it; or you can use it to help you complete your performance management framework, business dashboard, balanced scorecard or business intelligence strategy.

Performance frameworks, dashboards or scorecards are used by companies to group KPIs together into displays or reports so that they provide at-a-glance overviews of how the business (or business units) is performing. To facilitate the design of dashboards and scorecards, the KPIs in this book are grouped into the following key business perspectives that are shared across most organisations, irrespective of type or industry sector:

• Financial perspective
• Customer perspective
• Marketing and sales perspective
• Operational processes and supply chain perspective
• Employee perspective
• Corporate social responsibility perspective

Each KPI in this book is described using the same framework outlining why the KPI is important and what it measures, how the data are collected and how it is calculated. Each KPI description also includes a practical example as well as tips on data sources, target setting and benchmarking, measurement frequency, pitfalls, cost and effort of creating the data, and references.

For KPIs to be the vital navigation instruments that help you understand whether your business is on the right track or not, we have first to define the strategy and then closely link our KPIs to that. Too many organisations fall into the trap of retro-fitting objectives to existing and established metrics: which is simply back to front. KPI development has to start with your strategy and the objectives the business is aiming to achieve.

I spend most of my life helping organisations define their strategy, develop dashboards and scorecards, and develop the KPIs they need to monitor and manage their business. If you would like practical step-by-step guidance on how to develop and use a performance management system, I would refer you to my most recent books, The Intelligent Company (for commercial companies) and More with Less (for government and not-for-profit organisations). They will guide you through the process and make a perfect companion to this book.

One important point I make in my other books that is worth repeating here is that KPIs need to give us information and answers to what we need to know. What we have to make sure is that we know what our information needs are and what questions we want answered before we introduce any KPIs. This is why I have developed the concept of Key Performance Questions or KPQs for short. A KPQ is a management question that captures exactly what it is that managers need to know. The rationale for KPQs is that they focus our attention on what actually matters most and therefore provide guidance for choosing the most meaningful KPIs.

Many of my clients now use the concept of KPQs in anger to guide their KPI selection and to provide context for their KPI reporting. Take Google for instance one of todays most successful and most admired companies. Googles executive chairman Eric Schmidt now says: We run the company by questions, not by answers. So in the strategy process weve so far formulated 30 questions that we have to answer [...] You ask it as a question, rather than a pithy answer, and that stimulates conversation.

In this book I have created a KPQ for each KPI that is included. This gives you further context for each KPI and provides you with a starting point for using KPQs in your own business.

I have always stressed the importance of designing KPIs based on your own unique circumstances and information needs. However, what I have learnt over the many years of helping leading companies and government organisations with their performance management and business intelligence is that there are some important (and innovative) KPIs everyone should know about. They will give you a solid base of knowledge. However, there will be other, more specialised measures designed for your specific strategy or industry context. Take, for example, the network performance KPIs for a telecom operator or the quality indicators for healthcare providers. These will have to be included in your list of KPIs but will not be found in this book, at least not in their industry-specific format. For a wide-ranging list of business metrics I would like to refer you to the online KPI Library of the Advanced Performance Institute ( www.ap-institute.com ). There you will also find relevant white papers and case studies on the topic.