Measuring performance

TL;DR: Developing the right KPIs is important for promoting continuous improvement and overall business success. KPIs should be traceable to customer satisfaction and aligned with formal customer requirements. However, overemphasis on short-term financial results and collecting data that is easy to obtain, but not necessarily useful, can skew this process.

Abstract: Most organizations today have a set of key performance indicators (KPIs) that are used for decision‐making. Because a balanced scorecard approach has been widely adopted, typically KPIs have moved beyond the basic financial metrics. However, developing the right set of KPIs is an important step in promoting continuous improvement and overall business success. Organization that implement six sigma or lean six sigma have a built‐in set of KPIs, such as defects, ppm defective, process yields, process cycle times, and a variety of inventory statistics, such as WIP inventory. But I don't think this goes far enough in most situations. KPIs should be traceable to customer satisfaction, both for external customers and internal ones. Organizations should formalize customer requirements and then evaluate how they are doing with respect to this list when they conduct strategic planning sessions. This is a good way to develop the right KPIs. However, overemphasis on short‐term financial results can skew this process. Too much focus on quarterly growth in sales or revenue and deflect attention from the issues that contribute to long‐ term business growth and success. Organizations often gravitate towards collecting data that is easy to obtain, but may not be necessarily useful. An example is information about customer satisfaction data. Surveys can be useful, but may not tell the complete story. One organization that I am familiar with has a customer service line. They reported very few serious complaints from that source. Analysis revealed that the average waiting time for customers that used this line