Jan 26, 2010
Companies are examining operational performance more closely as they strive to improve efficiency and effectiveness across all aspects of the business. Traditional measures of business success are primarily financial in nature and tend to report historical outcomes. While these measures enable some understanding and analysis of past performance, they are not sufficient to determine the practical actions required to optimize operational performance.
Additional performance metrics have been used to address the issue of performance improvement. The first approach has been to identify Key Performance Indicators or KPI metrics that are aligned with the corporate strategy and typically measure progress toward achieving strategic goals. KPI metrics are useful for ensuring strategic alignment across the various organizations within the company and illustrate whether strategic goals are achieved. However, they measure results achieved in a past period and donï¿½t provide insight into the activities and drivers of those results, particularly within a period.
This leads to the need for another category of performance metrics called Key Performance Drivers or KPD metrics. A KPD is a measure that directly affects a business outcome or achievement of a KPI. These KPD metrics can be:
• A leading indicator or early warning that a situation exists that if not addressed will lead to a poor result;
• A performance metric that is associated with a preceding step in a value stream or business process; or
• A metric that contributes directly to a KPI and may be a component in the way