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Building Your Hierarchy of Measures and KPIs

by Stacey Barr, Performance Management Specialist, Stacey Barr Pty LtdWednesday, January 6, 2010

It doesn’t matter what type of business or organisation yours is, it will still have a few layers or levels of performance results that, through cause-effect or relationship mapping, interdependently sum up what the business must improve as it moves into the future.

There are four common layers of measures in any organisation’s heirarchy.

Level 1: success & sustainability measures

The highest level in your performance measurement hierarchy monitors the success & sustainability results for your business. These are the results that are implied by your vision, mission and ultimate outcomes for your stakeholders (i.e. customers, shareholders/owners, partners, communities, employees). These results are the ultimate evidence of the success of the business, and it’s likelihood to sustain that success into the long term future.

Examples of success & sustainability measures might include profit, market value of your business and customer loyalty.

Level 2: strategic measures

The measures that monitor your whole-business strategic objectives or goals are the next level in the measure hierarchy. These measures track the results implied by your business’s current strategic direction. They basically describe what the organisation is going to be like in the next 2 to 5 years.

Examples of strategic measures might include return on investments, market share, revenue and customer churn.

Level 3: tactical (or process output) measures

Tactical objectives or goals are the next level in your performance measure hierarchy, and they are derived from your core, end-to-end processes. It is these processes that have the significant impact on the business’s ability to achieve its success & sustainability results, and its strategic results. Your strategic objectives or goals provide the focus for what results matter most for these end-to-end processes now.

If you’re not yet a process-oriented business, then another way to determine your tactical measures is by exploring the impact each department or division in your business has on the strategic results.

Examples of tactical measures might include product development cycle time, new leads, product sales, customer satisfaction (with specific products or services), lost time injuries, on-time delivery to customers.

Level 4: operational measures

The results implied by operational objectives or goals or specific activities are monitored by operational performance measures. They usually track the root causes of tactical performance results. They are the drivers of whole-process results and are where resources are allocated to improve process performance and ultimately improve organisational success and sustainability.

Examples of operational measures might include sales conversion rate, rework, near-miss safety incidents, inventory turn.

Mapping your measure hierarchy

A little (but not much) like the strategy mapping discussed by Balanced Scorecard authors, Kaplan and Norton, mapping relationships among the levels of your performance measure hierarchy can be surprisingly valuable. Each measure has a relationship of some kind with at least one other measure, such as cause-effect, companion, or conflict.

Seeing these relationships mapped visually across the hierarchy of your measures makes it easy to see gaps in your strategy, easy to see how each part of the business contributes to ultimate success and sustainability, easy to pinpoint improvement actions when higher level measures aren’t achieving targets.

Why not give it a go?

Take a few of your business performance measures and just doodle a relationship map to get a taste for the impact it can have. Or take a look at my How-to Kit for a great method called Results Mapping which builds an easily cascadable and measurable framework of what’s worth measuring in your company or organisation, at http://www.staceybarr.com/resultsmapping.html.

About the author:

Stacey Barr is a specialist in organisational performance measurement, helping corporate planners, improvement officers, business analysts and performance measurement officers confidently facilitate their organisation to create and use meaningful performance measures with lots of buy-in.
Sign up for Stacey’s free email tips at www.staceybarr.com/202tips.html and receive a complimentary copy of her renowned e-book “202 Tips for Performance Measurement”.

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