We create KPI and Balanced Scorecard system with our own hands. Part One - Theoretical

KPI and SSP are tools that allow the owner or manager to “keep abreast of the business,” or more simply, to understand what is happening with the company at the moment, whether it fulfills predetermined strategic goals.



In general, the classic SSP - a good thing, but not cheap. Scorecards are created by large teams of highly paid consultants for several months. And not only created, but also supported. The fact is that SSP is not a static thing, and when external and internal factors change (crisis, sanctions, entry to the market of competitors) must be adapted.

And of course, one should not forget about the software for monitoring the performance of indicators. And she, too, is not worth a penny. And 30 thousand euros.

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That is why Balanced Scorecard systems are still considered a toy for corporations. Although in the west they are actively used by most medium and even small companies.

And now I want to share practical experience of how we implemented the MTP and KPI in our company.



I must say at once that I do not pretend not to be the laurels of Norton and Kaplan (the developers of the theory of the BSC), and even to do an academic retelling of their teachings. Those wishing to join the classic CSP are waiting for thick and smart books, and I will describe a very adapted and simplified model.



First, let's define the terms. KPI (Key Performance Indicator), also known as the KPI (Key Performance Indicator), is a kind of absolute or relative value that describes the state of functioning of a particular part of a company's business. Sounds hard? I have not yet given a formal definition of “this is a quantitatively measurable indicator of the actual results achieved”. Let's figure it out!



Anything can be a specific part of the company's business. The amount of money in the account, the speed of shipment of orders and of course the most favorite - the volume of sales. Everything you need to know about your business. And the sales volume is considered separately for each manager, each department and the company as a whole.

Thus, KPI is a kind of analogue of the sensors that carry your company around and on the basis of the values ​​of which you can judge how efficiently it works.



Stop! How can you judge performance based on absolute values? Sales volume of 100 thousand rubles - is it good or bad? Therefore, along with absolute indicators are used relative.

For example, the sales plan for a manager is 1 million rubles. If he sells from 0 to 500 thousand, the result will be bad. From 500 to 900 thousand are average, and over 900 thousand are good.



What did we just do? They divided the possible values ​​of KPI “Sales” into ranges, made new KPIs with discrete values ​​of “bad”, “medium”, “good”. Now, at a glance, you can understand which department and manager does not fulfill the plan. Most beautiful to show the status of the plan in the form of multi-position indicators - the same traffic light.



And you can also translate the implementation of the sales plan in interest. Thus, firstly, we will get another version of KPI, but already with a finite range of values. And secondly, we can combine the display of two KPIs on one indicator (speedometer-tachometer / thermometer). The arrow shows% complete, and the scale is divided into zones.



Here are the various options for indicators







Go ahead. Our indicators are located on several levels - for example, there is a sales plan for a specific manager, for a department, for the entire company. At the lowest level, absolute numbers are taken from the information system or entered manually. And their basis is calculated indicators of higher levels.

For sales, everything is simple - just add up the numbers. But for more complex indicators you will have to tinker - quite complex formulas and logical constructions can be used here.



How are KPIs usually implemented in Russian companies? Those indicators are selected, the meaning of which is clear to everyone (yes, again, the implementation of the sales plan), is prescribed at the lowest, maximum at the middle level. At the topmost level - the campaign level is prescribed something global, like the amount of money in the accounts. And this stops everything.

No, such an implementation is better than none. But the fact is that in the real world, all parts of your business and company are related. If their sales support engineer is cheating on customers, sales will fall. If the staff is poorly trained, it will not be able to work well. If customers wait for orders from the warehouse for two weeks, then they will go to the competitors, who all bring in two days.



And in order to take into account all the factors affecting your business, and was comrades Norton and Kaplan invented the Balanced Scorecard (in the Russian translation - Balanced Scorecard, SSP).

It is arranged as follows:

• a number of indicators describing the work of a company are related;
• indicators are at different levels of hierarchy (company, department, employee, etc.);
• Indicators are divided into four perspectives (groups), which are usually called:
  
  finance
  
  customers
  
  internal business processes
  
  development and training

And most importantly - the emphasis is not on performance, but on the company's development strategy!



Let's look at the last item in more detail.

Imagine yourself in the place of the owner of the company (it is quite possible that it is to them that you are). You caught a goldfish, it offers you the desire to make a wish. Will you tell her - “I want my company to complete the plan 100%”? Hardly. Rather, you will want to become the number 1 company in your industry.



That is the strategy.



So, the company needs:

1. Determine the company's development strategy - access to foreign markets
2. Set strategic goals - sales in overseas markets in 3 years $ 5M per year
3. Make a plan of strategic initiatives for each perspective separately
4. Draw up an implementation plan for each strategic initiative.
5. Make a list of indicators that will answer the question of how well a specific strategic initiative is being implemented.

The result should be such a picture (and of course a lot of documentation for it):





It seems that all this is very difficult and long. In fact, not very, and some of the exercises that you do when creating a BSC will help you increase your understanding of how to develop a company.

Next time we will talk about how to create an MTP using a pen and paper, and introduce it in a company using Microsoft Excel.



And a big request to those who have read this far to answer the survey below is very interesting to find out from many companies whether they got their hands on the introduction of SSP AND KPI.