Whether it’s a new business or an established business, performance measurement systems should be in place. Creating targets ensures that these measuring systems are as accurate and effective as possible. Performance targets are managerial tools that helpfully identify areas that need changes, especially within a growing business. Businesses have various metric systems at their disposal. Each business may have a preference on the metric system they use or find one more suitable over others. Focusing on departmental goals as the main strategic plan objectives and then using Key Performance Indicators (KPIs) to help set targets and choose the best corresponding metric system. Key Performance Indicators is a broad term that encompasses many different types of metrics a company could elect to use to measure performance. These metrics include, but are not limited to: financial ratio, customer retention, employee performance, and more.
Key performance indicators (KPIs) and targets serve different purposes. KPIs help businesses evaluate how well they are performing in correlation to their strategic objectives and goals (How To Set, n.d.). Targets, for KPIs, help measure where businesses are in relation to where they want to be. Once a company decides what factors they want to measure, they can determine the KPI metric most suitable and then establish an appropriate target. To better understand how this works, here is an example (How To Set, n.d.):
1. First, define a strategic objective to improve quality.
• Improve Economic Responsibility = Strategic Objective
2. Find one way to measure progress toward the strategic objective. *For this example, reduce the companies carbon footprint*
• Reduce Carbon Footprint = KPI
3. Then, establish a target for the KPI.
• Reduce Carbon Footprint by 8% by Jan 2021 = Target
As depicted above, understanding how each part correlates helps with clearly establishing objectives. Creating a SMART target allows for a more effective KPI evaluation. The SMART strategy applies to target setting, just as it did for goal setting (Measure Performance, n.d). The SMART strategy ensures that targets are: Specific, Measurable, Achievable, Realistic, and Time-bound.
As KPIs are tools of measuring, all targets by default will meet the first two criteria- being specific and measurable. A KPI target needs to be particular as it helps gauge where you are in relation to where you would like to be. When expressing the target particulars, it can be in proportional/ percentage (ex: Increase of five) or absolute (ex: Increase of 3%) terms. Furthermore, there are several ways to express target relativeness. This assesses the target progress in relation to their position in previous years, or even in regard to competitors. When expressing target relativeness one can use: internal benchmarks (ex: surpass results from 2017), external benchmarks (ex: surpass competitor A) and global best practice (ex: Become as good as A). Furthermore, targets should have a clear time frame for expectations (ex: achieve target A by January 2021). This ensures that targets will be achieved, and personnel can be more intentional in their work when deadlines are conveyed. Ultimately, properly set targets push employees and the overall business past current performance.
Establishing the right targets for an organization’s KPIs is imperative for improving performance. Targets can help asses a company’s departments and employees to see how well they deliver and meet strategic goals. Most commonly assessed are a company’s financial performance, customers, employees, and in correlation to other businesses.
Running a growing business mandates staying on top of financial performance. This helps identify opportunities for growth, and gauging profitability. A common main objective for business owners is Increased profits. Some of the key standard measures for this is: gross-profit margin, net profit margin, and return on capital employed (Measure Performance, n.d).
Another main objective of a growing business is retaining customers. Feedback is a major resource, as it allows the company to get a glimpse of what its customers think of the product/service offered (Measure Performance, n.d). Some ways to get this information are through sales data, surveys, reviews and even complaints. Assessing this information and adjusting accordingly can strengthen customer/ client relationships as well as the business overall.
Lastly, is the evaluation of company performance against other businesses. It is most beneficial to benchmark a business against those that are in the same category. It can also be beneficial to benchmark within the business itself (internally). This can be done by looking at overall department success and weaknesses. Setting targets helps in achieving the desired goals within each benchmark. Following through on targets by clearly assigning responsibilities and delegating tasks is essential. KPI targets should be solid and clearly designated to the proper department or channel. Upon reviewing measurements, of any form, companies should make whatever changes necessary to ensure there is growth and improving performance.
References:
How To Set The Right Targets For KPIs Top Target-Setting Tips For Successful Metrics. (n.d.). Retrieved from https://www.bernardmarr.com/default.asp?contentID=1334.
Measure performance and set targets. (n.d.). Retrieved from https://www.infoentrepreneurs.org/en/guides/measure-performance-and-set-targets/.
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