Key Performance Indicators are increasing in popularity again. In the 1990’s they were one of the key drivers in organisational change, today due to the pressure many organisations are under they are once again becoming an important organisational (OD) strategy.
What is a Key Performance Indicator?
A key performance indicator is a financial or non-financial measure used to help an organisation measure progress towards a stated organisational goal or objective.
KPI’s are used not only to run the organisation, but as a communication channel to people throughout the organisation.
The big mistake
When people are new to KPI’s they do their research and then introduce KPI’s throughout the organisation. Miller in his 1956 research on Capacity for Processing Information suggested from his research that the human mind can deal with approximately seven chunks of information (plus or minus two) – Miller’s magic 7.
While there has been a lot of controversy about this, it does appear to remain true that a number of measurable chunks around this number are optimum for performance, hence an organisation should use this as a principle or ‘rule of thumb’ for Key Performance Indicator development, not a ‘law’ for their use. This does not mean that an organisation is limited to seven key indicators. the process can be cascaded – for example at a strategic level the KPI’s may well be:
Marketing impact, finance, customer satisfaction, stakeholder satisfaction, employee engagement – then each of these in turn can be broken into finer granularity to another seven factors. etc.
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Mike Morrison is director of RapidBI, an organizational effectiveness consultancy. He has been involved in HR, OD and strategic development for over 20 years. He can be contacted via www.rapidbi.com/
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