The Importance of Key Performance Indicators in Management

Introduction

Key performance indicators (KPI) are used to measure a success point of an organisation versus a set of targets and objectives. KPI evaluates the success of companies or a particular activity in which it often engages as well as being considered as periodic effects of some operation level goals. Customer satisfaction and zero defects as well as making progress towards strategic goals are the main areas of KPI. Choosing KPI has a very common way which deals with applying management framework such as balanced scorecard. Since there are various techniques to assess the present condition of business, it is easy to access the key activities associated as per the selection of performance indicators . The assessments of key performance indicators often lead to identification of potential improvements (Jahangirian et al., 2017). The importance of performance indicators is evident as it helps in the typical decision-making process of an organisation and is equipped to analyse the status quo. The below study has highlighted the importance of key performance indicators along with the techniques required for the application. Moreover, it has also addressed disadvantages and advantages of performance indicators for understanding the value of organisational performance.

Thesis statement: Key performance indicator helps to measure and monitor the organisational performance based on customer satisfaction, ROI and employee satisfaction.

Discussion

Key performance indicators (KPIs) are categorised into various sections based on which company functions and gains profit in the market. Customer satisfaction, cost efficiency, return on investment (ROI), productivity, staff education and training, time and alignment with the goals of an organisation. In addition to that, as per the perception of Bahari, Susanto and Gunawan (2021), key performance indicators are required to function and plan about the progress of an organisation based on ROI, staff education, profit margin, customer satisfaction that leads to gaining competitive advantage in the market. In order to meet market goals and business perspective KPI manages to divert its attention.

Key performance indicators are a pertinent part of the business and also considered as the flash report on dashboard. Most of the larger organisations have multiple KPIs for each and every department of the business (Sharifi, 2019). However, despite having multiple KPI, each reports need to tie together in a single flash. As per the report of Silva and Borsato (2017), American Management Services (AMS) works with clients and to determine they seek to accomplish tasks in a specified timeline and this is the commonalities found in every KPI. Therefore, American Management Services focussed on time management KPI factor for feeding into the flash report. As per the report of Wipro (2021), Wipro helps customers and serving them is the main priority which is the KPI used for leveraging industry and eventually the employees believe that customer satisfaction is the main criteria to feed flash reports.

The National Performance framework (NPF) deals with different elements which describe the key performance indicator and its outcomes. National outcomes describe the feature of the kind of organisational performance one wants as a consequence of collective actions. In terms of value statement, it informs the behaviour of people in everyday life and is also a part of commitment in order to improve individual and collective wellbeing (Kennerley and Neely, 2020). NPF also describes about 81 national indicators and progress towards the outcomes. Therefore, organisations also have their own performance indicator based on predicting progress towards the outcome.

Social cognitive theory depicts the influence of individual experiences, actions and environmental factors which gives progressive outcomes to society. As per the perception of Bandura (2015), behavioral factors in an organisation within employees also appear as a performance indicator which gets measured based on negative and positive behaviour. On the other hand, as per the perception of Bandura (2018), social cognitive theory can be determined by four factors, goals, self-efficacy and outcome expectancies. Similarly, it is essential for organisations to also set clear goals and objectives for achieving KPI through proper performance measurement.

Goal theory describes the key factors of motivation towards something one wants to achieve due to which target and goals are important. Similarly, for sustain development and achieving organisational objective there needs to be goal initially to step towards the process of fulfilling it and measured with different KPIs (Locke and Latham, 2014). The below figure illustrates the basic tenets to achieve goal theory for better performance measurement.

Five step models have been categorised into 5 sections in order to achieve the idea of measuring performance in organisation. According to Marble (2019), identification of contract, performance obligation, transaction price, allocation of price performance obligations and recognition of revenue are the steps aligned to achieve key performance indicators. Similarly, on the other hand, revenue is itself a performance indicator which shows the success rate of an organisation and market value at the same time.

Performance measurement is a kind of process wherein valuable information regarding a system, group or an individual and organisation is analysed and reported. As per the perception of Badawy et al. (2016), the information that performance measures is considered to be very informative as well as helpful due to which it becomes easier to create valuable reports and share information with stakeholders. Moreover, this measurement of performances are categorised into 4 ways such as people measure, customer measure, process measure and financial measure.

There are different techniques available to measure performance in an organisation for meeting goals and objectives successfully. Firstly, creating a mission statement, that plays a vital role in every organisation because it is the framework on which companies lean on and later on it becomes critical to create if one is looking for an effective performance measure technique (Van Looy and Shafagatova, 2016). It provides an overall business idea to the stakeholders and is also considered as a mission statement which gives clarity to the employees so that they could improve their performance. Secondly, creating different levels of objectives, that is acknowledged as the key to develop various levels of objectives so that employees tend to believe in the scheme of organisation. Setting out different objective levels would prove a boon in understanding a specific role and it helps business to grow (Roubtsova and Michell, 2014). Thirdly, creating short- and long-term performance plan, which, as per the perception of Van Looy and Shafagatova (2016), it is identified that short time objectives like cost control which would result in long term outcomes and also boost customer satisfaction especially in MNCs. Fourthly, knowing the critical factor to success of CSFs is vital for every employee in an organisation, as per the report of Roubtsova and Michell (2014), and it plays an essential role in achieving company goals. It empowers the workforce and motivates them to reach their end goals.

As per the Scottish Government National Performance Framework, in order to measure performance, there has to be a purpose behind and then the targets which would take to the strategic objective, national indicators and outcomes (Kennerley and Neely, 2020). Therefore, companies need to focus more on sustainable economic growth opportunities to meet and measure the exact KPI.

Advantages of using performance indicators while monitoring as well as measuring organisational performance because it takes the step forward to sustainable development. Moreover, as per the perception of Moses (2021), KPI helps to quickly understand the complex status of an organisation as well as formulate goals to measure their implementation. KPI increases the decision-making skills among managers and employees through increasing efficiency in communication. On the other hand, Gotian (2021), stated that manufacturing sectors put more focus on delivery reliability in terms of performance, customer satisfaction. However, measuring performance in terms of cost, time, flexibility, employee satisfaction and social performance indicators have a positive as well as significant impact on overall performance criteria of an organisation.

Disadvantages of performance indicators were found several decades ago by Edgar Schein wherein it has been discussed that hanging multiple functions that reflect different stakeholders. Moreover, in order to illustrate the issue Sakapurnama (2015), declared that the goal of the firms is the prime resource toi judge ultimate outcomes. As per the report of Moses (2021), the Business Roundtable (BRT) declared value for shareholders is the first paramount duty after which in August 2019 more than 200 CEOs of major corporations have signed in new BRT which happened after lots of criticism. As per the perception of Sakapurnama (2015), Indonesia faced major challenges as well as obstacles in measuring performance for public sector organisations. Therefore, the lack of knowledge in the making of performance measurement planning as well as the absence of reward punishment are to be believed as obstacles in order to measure institutional performance in the form of KPI.

Conclusion

In the above discussion it has been stated that key performance indicators play a vital role behind organisational performance which reflect both positive and negative impact. The idea of measuring performance in an organisation needs techniques to solve the purpose. Moreover, social cognitive theory and national performance framework has depicted the importance of behaviour and individual experience required as it also reflects performance indicators which are being considered in the market to gain competitive advantage.

References

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