Management by objectives and how to build KPI’s for efficiency?
To achieve set goals, businesses must create a system of KPIs to monitor and evaluate their work performance. But what if you have no idea where to begin? Find out how to build KPIs for businesses to control goals effectively in the following article.
1. KPIs in management according to business goals
KPIs – Key Performance Indicators have the purpose of measuring job targets, and are evaluated based on data, quantification, percentage of employee’s task completion.
With KPIs, businesses can measure the effectiveness of their human resources and reward or warn them to improve quality. So what are the types of KPIs in management by goals?
KPIs are clearly defined with two main categories that businesses need to capture:
- Strategic KPIs: That is, the board of directors will set big goals for the whole company such as 1-year sales, profit, market share, …. To expand and improve brand value, KPIs in the next two years must account for 50% of market share.
- Tactical KPIs: In this type of KPI, departments are measured on how well they implement the set strategy. Marketing campaigns will attract 1000 customers, but they will not guarantee sales for the sales department. For the purpose of measuring departmental performance and achieving strategic goals, tactical metrics are used.
Indicators are also imposed on different subjects such as management levels, which will often be associated with strategic KPIs, tactical indicators will apply to employees.
There are different subdivided tactical KPIs such as KPIs for sales staff, KPIs for marketing staff…
2. Steps to build effective KPIs
In order to closely monitor and manage according to the set goals, leaders and departments need to have a set of standardized and realistic KPIs. Therefore, building a KPIs system will include the following steps in goal-based management:
- The person who imposes KPIs – In most cases, the department head or human resources department should set this first step, since they are familiar with the employee’s work items. In order to be more objective, the human resources department should develop a set of KPIs, and then the heads of specialized departments should reevaluate them.
- KPIs – In this step, we need to define specific indicators for each appropriate department and employee. To make it easier, businesses or specialized departments can apply the SMART model to impose KPIs.
- Specific – Set specific, clear goals
- Measurable – Ensure goals can be measured quickly and effectively
- Attainable – Ensure the feasibility of the mission
- Relevant – Objectives must be related to the ultimate goal of the business
- Timebound – Specific time to complete the goal
Implementing KPIs and managing them according to goals requires the specialized department to consider the current business model and the work of each department. A KPI may include: agency revenue, customer service, profit, completion time, number of repurchases, etc., for the sales department.
- Evaluation and measurement – The business will measure efficiency at different levels depending on the importance of each department:
- The important department will account for 50% of the target, because it has a strong influence on the strategic goal.
- Since the time to complete the goal is shorter, less impact on the overall goal, the less important department will have to achieve 30% of the target.
- Support departments will be required to meet 20% of the target, since their work has little impact on business objectives.
- Salary and bonus – In addition to evaluating the level of work completion, the specialized department should also be clear about the reward level in order to motivate employees to do their best. This policy needs to be developed and agreed upon by the board of directors, specialized departments, and department heads.
- Timely adjustment of KPIs – Optimal KPIs need to be monitored and adjusted in a timely manner by specialized departments and heads of departments, since setting KPIs too high rather than reality will cause employees difficulties. In order to achieve higher performance, departments must coordinate to adjust KPIs accordingly.
With the above simple steps, the specialized department can build KPIs and manage them according to their goals easily under a small scale. The enterprise, however, should consider an ERP solution if it has more than 500 employees in order to develop a professional, convenient, and optimal KPIs system. BEMO is a reliable partner that will help businesses experience the human resource management module at the most competitive cost. Contact us!