Measuring success: Key performance indicators in Business Management evaluation

Authors: Juan Lugo Marín / Aracely Henríquez.

Introduction

In today’s fast-paced and competitive business world, success is not a destination, but a continuous journey. Organizations are constantly looking for ways to measure, evaluate and improve their performance. This is where Key Performance Indicators (KPIs) come into play. These aren’t just numbers on a spreadsheet; They are the compasses that guide companies towards their strategic objectives.

In this article, we will explore the fundamental importance of management indicators, how to establish them successfully, and how they relate to business processes. We will learn about the methodological process behind creating effective indicators, how to monitor them and, most importantly, how to precisely align them with an organization’s strategic objectives. Get ready to discover how to measure success like a true business professional!

General importance of Management Indicators

Let’s imagine a journey along an unknown path, where each decision can have a significant impact on our destiny. Without a compass or map, we would be lost and aimless. Likewise, in the business world, KPIs act as compasses, providing clear and objective direction. Next, we will analyze why they are so essential:

• Objective measurement: KPIs offer us objective and quantitative measurements of an organization’s performance. They prevent decisions from being based on assumptions or hunches, allowing for accurate evaluation. They are based on facts, data and verifiable evidence.

• Effective communication: These indicators simplify communication within the organization. They establish a common language that everyone can understand, facilitating collaboration and data-driven decision making.

• Focus on objectives: They help maintain a clear focus on strategic objectives, remember that when defining objectives they must be measurable. By choosing the right KPIs, all parts of the organization work together toward specific goals.

• Flexibility and adaptation: Indicators are flexible and can be adjusted as circumstances or business objectives change. This allows organizations to be agile and adapt to constantly evolving business environments.

Key success factors for establishing indicators

Establishing management indicators is an art in itself. It is not enough to choose random numbers; They must be carefully designed and target the vital aspects of an organization. Although there are various theories about the aspects to consider when defining management indicators, below are some key success factors that should be considered in the process of establishing them:

• Efficiency: Measures the relationship between the resources used and the results obtained. An efficient indicator evaluates how the organization uses its resources to achieve its objectives.

• Effectiveness: Evaluates whether the organization is achieving its objectives. An effective indicator should measure whether the desired results are being achieved.

• Effectiveness: Focuses on the organization’s ability to achieve a positive impact on relevant stakeholders. An effective indicator assesses whether the organization is fulfilling its mission and generating real value among relevant stakeholders.

Key performance indicators in business processes

Management indicators and business processes are inseparably intertwined; when a KPI system is defined, it is usual in practice that they are defined within the framework of a process-based management system. That is, by measuring and monitoring KPIs, the organization in turn evaluates the performance of its processes and their contribution to the fulfillment or not of the previously established objectives. Consequently, it is essential to consider the following aspects:

• Identification of key processes: To establish effective indicators, you must first identify each of your organization’s key processes. What activities are essential for the fulfillment of each process? KPIs should reflect these critical areas.

• Monitoring and measurement of processes: It is not enough to know what the processes of an organization are and what they are like inside, we have to know what the measurement elements are that we must take into account to know the performance of the processes, there it is where indicators come into play. The reading of the indicator will tell us in terms of effectiveness, efficiency or efficiency, for example, how the process behaves. KPIs measure the performance of these key processes. Let’s consider the following case, in a manufacturing company, a KPI could be production line efficiency. Another reference could be in a pharmaceutical industry the regulatory approval rate, which reflects the level of effectiveness based on the proportion of approved applications for new drugs in relation to the total applications made.

• Continuous improvement: KPI results often reveal areas where business processes can be improved. This begins a cycle of continuous improvement. Continuing with the example of the pharmaceutical company, if the approval rate is low, its effectiveness is low, therefore, it can be interpreted that the company is not complying with the requirements demanded by the regulatory entity, which invites action. strategic oriented towards improvement, such as the exhaustive review by the organization of the key processes associated with this result.

• Alignment of objectives: Management indicators help align the objectives of business processes with the strategic objectives of the organization. This ensures that all activities are directed towards key goals. To illustrate this, let’s consider a strategic goal: increase customer satisfaction by 10% in the next year. To achieve this goal, by aligning strategic and operational objectives, an indicator that is associated with this initiative is the average customer response time. If a reduction of X minutes in the average customer response time is achieved, the process would be streamlined and contribute to the achievement of the stated strategic objective.

Methodological process for establishing indicators

Establishing effective management indicators is not a task that can be taken lightly. It involves a solid and sequential methodological process that we address below:

1. Definition of strategic objectives

Start by clearly defining the strategic objectives you want to achieve. These objectives must be specific, measurable, achievable, relevant and time-bound (SMART).

2. Identification of indicators

Based on your defined goals, identify key indicators that will provide insight into your progress toward those goals. These indicators must be directly related to the objectives and be measurable. Management indicators must consider a series of fundamental elements in their definition, such as: indicator objective, formula, periodicity, responsibility, reference level, reading points, information collection instruments, among others.

3. Goal setting

Define specific goals for each indicator. These goals should be challenging but achievable and should reflect your strategic vision.

4. Data collection

Determine how you will collect the data needed to calculate the indicators. This may require the implementation of tracking systems, surveys, analysis of existing data or other sources of information. Consider the accessibility of this collected data, as well as the frequency of collection and its cost.

5. Implementation

Implement systems and processes to collect data and calculate indicators on a regular basis. Make sure there is a constant flow of relevant information.

Monitoring and tracking of management indicators

Once management indicators are established, monitoring and tracking are essential to ensure they remain effective. Here are some important practices:

• Dashboards: Use dashboards or dashboards to display your indicators in a clear and accessible way. This facilitates regular review by stakeholders.

• Alerts and Notifications: Set up automatic alerts to indicate when an indicator deviates significantly from its target. This allows for quick action.

• Periodic reviews: Conduct periodic reviews of your indicators and objectives. Make sure they remain relevant and aligned with the organization’s strategy.

Alignment of management indicators to the strategic objectives of the organization

A management approach supported by indicators is not an end in itself. Firstly, it must be considered that they are framed in what is known as process-based management, which is based on the principle that processes are part of a system and contribute to obtaining good overall results in the organization, which may be referring to one or more of its interest groups. That is, each of the processes contributes to the achievement of the general objectives of the organization, which implies the existence of “cause-effect” relationships between the results of the individual processes and the global results of the system.

The same happens with the indicators, each of them must reflect the direction towards the proposed strategic objectives, covering the route from the operational to the strategic. An organization must be aware of these relationships to propose the deployment of objectives through the different indicators. The general scheme to carry out this deployment would be the following:

1. Determine the overall objectives of the organization;
2. Identify key processes in the process structure;
3. Establish objectives in key processes;
4. Define the Indicators for each key process;
5. Establish goals and/or actions for the indicators, aligned with the achievement of the objectives.

Conclusion

In summary, key performance indicators (KPIs) are an invaluable tool in evaluating business management. They provide a quantifiable view of how an organization is progressing toward its strategic objectives. By establishing effective metrics and carefully aligning them with business processes and strategic objectives, organizations can make informed, strategic decisions that drive them toward sustainable success. Modern business management cannot do without these indicators, as they are the compasses that guide organizations on their journey towards continued success.

References

Own source

About the authors.

Aracely Henriquez

Industrial Engineer with a Master’s Degree in Business Management and a Doctorate in Management Sciences. She has worked as a university professor, researcher in the management area, and organizational advisor in the areas of strategic planning and productivity.

Juan J. Lugo Marin

Industrial Engineer with an outstanding academic and professional career. He obtained his PhD in Management Sciences and completed a Post-Doctorate in Business and Futures Studies at Corvinus University in Budapest, Hungary. His work experience includes roles as a Quality Engineer in Oil and Gas projects for Petróleos de Venezuela and as a Consultant in the development and implementation of management systems in companies in Latin America and the United States. In addition, he has been a university professor for several years and has contributed significantly to research in quality management and strategic foresight, being the author of books, scientific articles and conferences in the Latin American academic field.