Prepared by

Dr. Ahmed Halim

DBA Horizons University, France (on goining), MBA ESLSCA Business School,
France.

Based on the best practices proposed by the KPI Institute.

 Definition of 'Key Performance Indicators - KPI‘ or “Key Success
Indicators (KSI)”

A set of quantifiable measures that a company or industry uses to

gauge or compare performance in terms of meeting their strategic and
operational goals. KPIs vary between companies and industries,
depending on their priorities or performance criteria.
Which of the following can be considered as a KPI?

1. Production cost analysis forecast.

2. Market research report
3. Rework and fault finding
4. Delivery efficiency
5. Quality services
Which of the following can be considered as a KPI?

1. Production cost analysis forecast.

Per cent production cost variance estimate vs actual
2. Market research report
Per cent market research report meeting all specifications
3. Rework and fault finding
Average rework hours per items
4. Delivery efficiency
Cost per order delivery, average delivery time per order
5. Quality services
per cent defect rate
KPIs are not only means of control, but also used for:

1. Organization improvement/learning
2. Individual improvement
3. Making synergies between departments
4. Evaluation of strategy, operations, employees, risk management
processes
5. Decision making
6. Focusing on the most important factors for success

N.B: KPIs are means, not a target

KPI formation
 Business Key Success Key Performance
Objectives Drivers (KBDs) Indicators (KPIs)
Determine. Tracked by.

1. Increase More competitive % production

Profit by 30% in price cost to product
2017 price
WHO??

2. Serving more Faster delivery average delivery

30% customers
time
during next
year
KPI Characteristics
1. Related to the end goal
Ex. End Goal: Increase sales
Strategy: Increasing brand awareness
Key Business Driver: number of customers visits
KPI: number of visits per customer not less than 3 per month

2. Controllable and accountable.

3. Specific (timed, measurement, per cent …etc)
4. One KPI per one target
5. Not impossible but not easy (challenging)
KPIs Evolution
Relevance and customization are KEYS…
Why??

+ =
What to measure What are the Tailored KPIs
strategic
objectives?
KPI Common Pitfalls
I. KPI selection stage
1. Popular KPI: (measuring for the sake of measuring)
Does not guarantee that performance will improve
Tailor on what you need according to the company maturity and the life cycle
of the product
Ex.1. Decrease response time in a call centre(bad if company wants to grow)
Ex.2. Hotel chain trying to increase cash flow by decreasing cost… (level of
service decrease and cash flow follows… better to measure per cent of
occupancy to increase cashflow)
Ex.3. Online company focusing on number of visits went bankrupt, why??
Better to focus on the conversion rate of those visits…!

Those KPIs were not customized, were not linked to the strategic goals of
the company
KPI Common Pitfalls
2. The “beauty contest”: Measuring what would be good and
guaranteed

Ex.1. Training hours per FTE vs per cent employees with

competencies improved

Ex.2. number of leads vs conversion rate

KPIs are better applied to poor areas reather than the

guaranteed good areas
KPI Common Pitfalls
II. KPIs usage stage.
1. Blinded by data (what is important to measure)

Ex.1. per cent orders delivered on time vs per cent customer

satisfaction

Ask backward questions to know the root cause then put

a KPI to track its improvement (the root cause analysis)
KPI Common Pitfalls
II. KPIs usage stage.
2. Manipulating the data (inflating results)

Ex.1. per cent perfect complete orders Splitting of

orders
Ex. 2. Doing employees satisfaction survey after bonus
distribution

Rules for data collection and data sources (more rules for
better outcomes to employees)
KPI Common Pitfalls
III. Data Evolution Stage
1. Misalignment between performance measurement system
& strategy

Ex.1. More profit based on better service vs call center call

average time

Make sure you align KPIs with strategy (illustrated on

later slides)
KPI Common Pitfalls
III. Data Evolution Stage
1. Lack of Innovation (we take what is popular)

Ex.1. To grow we tend to measure the revenue increase

cash problems, so its better to add cash conversion cycle
time with it to balance growth focus with liquidity issue

Tailor, tailor, tailor (strategy? stage of growth?, who?, link

with other KSDs?)
KPIs and Departments Synergy
I only care about my department and about my target
problem!!

 The race for budget

 The competition for bonus
 The project prioritization

Align KPIs vertically & horizontally

KPIs and Departments Synergy
Ex. Sales at the end of a quarter encourage customers
to by without caring for collection time creates
logistics problem (% late delivery) as well as financial
problem (# days in accounts receivables)

Make a map
KPIs and Departments Synergy
$ profit

1. Vertical alignment
% Market share
Commercial
% returning customers % customers from referrals

% customer satisfaction

Logistics
** # service lead time

% staff with competencies at desired level % employees engagement HR

KPIs and Departments Synergy
** # service lead time
 KPIs and Departments Synergy
2. Horizontal alignment

Commercial
Logistics
Inventory
% market share
% on-time
$ inventory cost
delivery
$ customer
acquisition cost % stock availability
% complete order
# orders # stock rotation
# time to lead
processing time
** # days sales of
$ transportation
% order in inventory
cost
accuracy rate

** Days in inventory, 'Inventory Days of Supply(DoS)', 'Days Inventory Outstanding‘: average number of days the company holds its inventory before selling it.
The proper KPI
A KPI need to be:

 Specific

 Measurable

 Achievable

 Result-oriented or Relevant

 Time-bound
The proper KPI