The relentless pursuit of improvements in corporate performance leads companies to invest in managing performance indicators.
Fierce competition, constant changes in the market, the introduction of new technologies practically every day and the increased demand from the consumer public are barriers to be overcome through increased organizational performance.
Finding the right points of difference, promoting excellent service and customer relationship strategies, innovating, creating and recreating ways to meet consumer needs requires a high level of ability to analyze company actions, leading us to the famous phrase “unmeasured cannot be managed,” attributed to Peter Drucker (but also to Joseph Juran).
And how do you measure the efficiency and effectiveness of management? Some would choose to simply observe a company’s overall results. If it’s making a profit, it’s working. However, we know that there are many other details involved in reaching this conclusion.
We will now explain what are strategic, tactical and operational goals, how important they are in an organization and how to apply best management practices in companies through a performance indicator management system.
No wonder we often compare the operation of a business to the organism of a human being. The perfect functioning of all organs (departments) ensures the health of the individual or the organization.
We know whether or not things go well by analyzing the symptoms: cash flow, profitability, revenue, productivity, quality, efficiency, etc.
While the doctor takes a series of exams to conclude what the patient has, in a company we do extensive analyzes of organizational performance, studying the strategic, tactical and operational goals individually at each of these three levels.
From company strategic planning, we set the primary business objectives for the next period, break them down into goals to be met, and then assign indicators that tell us if we are on the right track to reach the proposed goals.
This method is not new to anyone, even to those not in the corporate world. Whenever we have a goal, such as buying a home or starting a business, we do basic strategic planning, even if only in thought.
To buy a house, you need to save a certain amount of money per month, for X months, and then give the down payment. In business, this is not much different, as will be exposed throughout this article.
Frequent use of performance indicators serves to guide the actions of a company and its contributors towards the priority objectives of the business.
It is the best way to identify failures and opportunities in order to maximize results in the organization. It is also a way to monitor internal and external variables that impact the business, creating a controlled environment so that you are not at the mercy of market ups and downs.
Learn about other benefits of maintaining consistent strategic, tactical and operational goals management:
One of the attributes of performance indicators is to promote the correct strategic alignment between sectors. Assuming that one of the organization’s priority objectives is to increase the customer satisfaction rate from 80% to 95%, it is up to each sector to identify within its activities how to contribute to this goal and to develop effective actions to achieve this result.
If the company does not communicate this goal to everyone, posing it as a challenge to be overcome together, the sales sector may be focused only on the number of conversions and does not pay due attention to customer satisfaction during the sales process, which affects customer retention and increased marketing budget to capture more and more leads.
Another easy-to-find example is that we see the inventory industry concerned with commodity inventory as the logistics people wait for product separation to ship to customers. The longer one sector takes to perform its activities, the lower the performance of the other, impacting the company’s overall results.
When there is strategic alignment of performance indicators, these situations do not occur, as everyone is aware of what the company’s priorities are at that time. When each person’s work becomes directed towards what the company expects as a result, teamwork, division of responsibilities, and, of course, achievement of set goals are facilitated.
Efficiency is the result of the correct use of resources versus team productivity. Productivity depends on the quality of the technologies used and also on the speed with which processes are executed. In this sense, the monitoring of performance indicators can contribute in several ways.
By monitoring company processes, such as average service time, machine idleness, production capacity, number of outputs per hour, among other indicators, procedural bottlenecks are detected and, from this detection, you can act proactively to eliminate them.
Small changes can bring big business gains, such as simply arranging tables so that printer access is easier. In the accounting industry, for example, you can adopt a tax management system that allows you to import invoices in XML file format, considerably reducing the time spent manually posting these documents.
Process automation and the consequent elimination of manual and bureaucratic tasks make the team more productive, which means more deliveries in less time.
In a factory, this would be reflected in higher production, which would increase sales capacity and also reduce production costs; In a telephone company, more customers could be served in less time, increasing customer satisfaction.
Tactical and operational strategic planning through performance indicators also serves to detect patterns and trends in your activity, which can become new business opportunities.
Consumption patterns, consumer behavioral changes, the sudden increase in demand for a particular product or service, among other variations, can provide important insights for new solutions to be developed.
If sales indicators are being followed and there is a steady drop in demand for the flagship product of the company and a steady rise in demand for another product, one can reverse the marketing strategy, seek to understand what caused this sudden change and thus map out a new action plan for the organization.
If these indicators are not being studied constantly, some consequences could be impacting the business, such as the loss of sales for a product that has rising demand; lack of stock to meet this new demand; damage to idle products; among others.
One of the biggest advantages of tracking the right strategic, tactical, and operational goals for your business is the ease with which you can make decisions. With the right up-to-date data on the organization’s performance, it is possible to direct efforts towards investments that will bring better results.
In an e-commerce company, for example, performance indicators are able to guide decisions about decentralization of inventory, fleet maintenance or the outsourcing of it and even about the expansion into different markets, aiming to serve areas that lack the products offered.
When data is not available, decisions are based on intuitions that are not always correct. This is what happened to companies like Kodak and Xerox, who did not believe in market developments and ended up failing by selling obsolete products.
Establishing a performance indicator management system basically has two functions: planning and controlling the fate of the organization.
Initially, strategic, tactical and operational planning must determine what is expected for its future; then monitor the data to see if it continues on track.
On a long trip, for example, you know where you are and where you want to go. Having defined these two points, it is necessary to determine how to get there (trajectory) and the essential stopping points to recharge, eat, rest and move on.
All of this must be scaled within a feasible time frame, taking into account all the variables that may impact displacement. And so the strategic, tactical and operational goals are determined.
These are linked to the strategic planning of the organization and mark the future that is expected for the company. Therefore, they are linked to the company mission and vision. The mission is the purpose of the company’s existence and describes why it was created. The vision portrays what the organization wants to be in the future.
Strategic goals are based on prior analysis of the internal and external scenarios of the organization. Internally, issues such as business model, points of difference the company has, capacity for innovation and intellectual capital are valued.
Externally, competitors are analyzed, along with the country’s economic situation, sector policies, laws and other variables that impact activities.
A good tool that helps in diagnosing the company and defining strategic goals is SWOT analysis (Strengths, Weaknesses, Opportunities and Threats), identifying where improvement is needed to achieve higher performance.
Once you know what the company wants for the next 5 or 10 years, the next step is to determine how each area will contribute to achieving these goals. Then, the medium-term management goals are identified.
Tactical planning is an action plan to be undertaken within 1-3 years and must be fully aligned with strategic planning. Let’s say one of the company’s long-term goals is to expand business from the South to the Southeast.
At the tactical level, one must question what can be done to achieve this goal. First, increase production so that it meets demand; in the background, hire a team of local salespeople; and so on.
Based on these actions, goals and indicators are also stipulated to allow the company to monitor the company’s performance at the tactical level. With a tactical level that has been meeting the goals and being aligned with the strategy, there is a great chance of accomplishing the greater goals of the organization.
Finally, we have operational or short-term indicators. They are closely linked to the processes and operation of the company as a whole. Operational indicators are assigned to people, involving each company employee so that he or she actively contributes to the organization’s strategic objectives.
Imagining a construction worker, we can assign indicators such as m2 built per hour, which would be an indicator of productivity. The law of a company can have as its indicator the number of contracts drafted per day or the number of jobs done.
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An operational plan aligned with the strategy is a strong ally to its execution, ensuring the completion of medium and long term plans.
Now that we know that the management of performance indicators in companies should be divided into strategic, tactical and operational levels, we are going to show you what kind of indicators are measured at each of these steps.
As mentioned earlier, strategic indicators are long term and should reflect the scenario in which the company expects to be in the future.
Let’s use examples of corporate performance indicators:
Let’s say the company’s organizational vision is to be the “world leader in the natural foods market.” A basic premise is to know who is the current leader of this market and what position the company occupies.
Assuming that it is ranked third in this ranking and that it needs to increase market share by 15% to become the leader, one of the strategic goals will be about increasing market share. Now what you have to do is determine how much time the company has to grow by 15% to stay ahead of the opportunity.
Remember that strategic goals are long term, ie goals to be achieved in 2 or 5 years. Often times a sense of urgency makes us believe that we are far behind our competitors, but we need to evaluate the time we are in the market and the maturity level of our company.
Tactical goals are medium term, and they can be pursued for the next 12 or even 24 months. It all depends on the goals of the organization and the ability of your team to perform.
Using as an example, the strategic goal of a 20% increase in revenue, what management should ask is: what can we do to achieve this goal? Then list the goals and their indicators. For example:
Tactical indicators are medium term and may range from 1 to 3 years. It all depends on the goals of the organization and the ability of your team to perform.
Operational goals support management goals, so they must be in line with the challenges proposed by management. Following our previous example, with operational indicators we can have:
As you can see, operating indicators are short term and can be measured monthly.
A performance indicator management system is not done on its own, it takes a concerted effort by all involved for a company to measure the data correctly and have input to make decisions that will achieve its strategic objectives.
Adopting best practices for measuring results is the most effective way to socialize the management culture through performance indicators and get the best that the company can generate. A couple of tips:
The use of the SMART method for setting goals allows attention to be focused on what is really important to the company. Knowing how many people are in contact with the sales industry is not as relevant as identifying which of these contacts are really qualified. When these indicators are defined, you need to make sure that they reflect the result the company expects to achieve.
Indicators that are strategic today may not be tomorrow, so you need flexibility with planning. The goals you set may prove impossible to achieve or the economic scenario may change such that the priorities are reversed. Being aware of this is critical to not stick to indicators that no longer reflect the needs of the company.
Measuring data just to show it to people and collect what wasn’t done doesn’t help the business get where it wants to go. When goals become a vehicle of pressure, the company tends to suffer a serious internal crisis of credibility and self-confidence.
It is interesting to use goals to identify points of improvement to get to the root of problems that can be solved. One should always consider them as agents of organizational change, as motivators for the team to feel able to overcome barriers and reach ever higher levels of excellence, quality and productivity.
A small business can start with a few select performance indicators. As the organization grows, the number of indicators proliferates, the need to plan and control internal and external processes, people, and variables increases exponentially. And doing it all by hand starts to become unfeasible.
Therefore, one of the best practices we can recommend is the use of technologies that help identify, measure and analyze company indicators. One is Corporate Performance Management (CPM), also known as the Corporate Performance Management System.
CPM is a complete solution that assists from strategic planning to deployment into tactical and operational plans. With it, a company is able to structure strategic maps, identify the most important indicators for each scenario, illustrate results through performance headlights or graphically, getting a complete view of organizational performance.
Integrating CPM with other business management tools, such as CRM and ERP, brings greater security to company decisions by comparing data from multiple sources for a more complete analysis.
What’s more, with a solution like CPM, a company can become faster and more productive by eliminating repetitive tasks and time spent scrutinizing spreadsheets and other documents that often proliferate in the corporate environment.
The basic premise for a company to operate with a focus on indicator management is that everyone is involved in the process of identifying and tracking this information.
Imposing goals and indicators without discussing with the team what is important, achievable and feasible undermines good relationships between managers and managers and employees, creating an additional barrier to achieving the organization’s goals and objectives.
Results-based management only benefits if there is commitment from all parties, which requires fluid, two-way communication. The team needs to be comfortable both to question an indicator and to propose changes.
Finally, do not forget to share achievements. When a goal is reached, it should be communicated, celebrated, and due thanks should be given to all who were part of the process. The success of a company comes from everyone’s joint effort, and recognition is critical to keeping the team engaged in the next challenges.
STRATWs ONE is a corporate performance management software developed by Siteware. It’s a robust, easy-to-use tool that delivers real-time business metrics, helping you improve performance and finding opportunities for improvement.Revolutionize the management of your company with STRATWs One