Setting effective KPIs for strategy

If I had to pick a single aspect of strategy that professional strategists struggle most with, it would be setting Key Performance Indicators (KPIs) to track progress towards strategic success. This, perhaps, shouldn’t be a huge surprise; here are some obvious reasons why strategy KPIs are hard to set and track:

• Strategic change is often delivered through cross-functional initiatives;
• All the means of achieving the desired strategic change may not be known at the start of the strategy;
• Strategy often seeks change in hard-to-measure aspects of performance (ways of working, organisational culture).

In my mind, however, there are some much deeper reasons why setting and tracking strategy KPIs is so hard. Here is the essence of my thinking in what I consider to be five truths about strategy KPIs.

1. Strategic KPIs are always in the service of strategic goals.
• A strategic goal is an action with a purpose;
• A strategic KPI is a measure of the effectiveness of the action in achieving its purpose.
2. Strategic goals cascade.
• Low level strategic goals are the methods by which higher level strategic goals are achieved;
• Each high-level strategic goal must have a set of methods that are both sufficient and necessary for it to be achieved effectively;
• High level strategic goals define the purpose that low-level strategic goals are designed to serve;
• Each low-level strategic goal must have a sufficient and necessary set of purposes to justify undertaking it;
• These two-way dependancies can connect strategic goals together into a logic diagram that can be used to validate the internal consistency of the strategy.
3. Strategic KPIs must also cascade.
• Evidence of large, complex, long-term, cross-functional changes (i.e. strategic change) is usually only possible by showing that  smaller, shorter-term, more specific changes are aggregating together in meaningful ways.
4. Good strategic KPIs can, therefore, only be built upon good strategic goals.
• The only way strategic KPIs are going to aggregate meaningfully is if the strategic goals, they are designed to track, connect together logically.
5. This doesn’t need to apply to all KPIs – there are lots of KPIs that are not strategy KPIs.
• Strategy KPIs are often one small sub-set of all the KPIs in use across an organisation. Most KPIs are typically involved in checking the on-going health and effectiveness of the organisation. These can be called the ‘business-as-usual KPIs’ or the ‘operational KPIs’;
• Strategy KPIs  are designed to track progress towards objectives of long-term value to the organisation … because that’s what strategy is intended to bring about.

As a quick way to audit your own strategic KPIs, check that they all pass the TAP test. Every strategic KPIs need to be:

• Trackable – they could be measurable but don’t have to be. Simply using a yes / no conformance test can be a great way to check the extent to which all the pre-requisites necessary for achieving a strategic goal have been completed.
• Actionable – For KPIs to be actionable, they need to be owned, they need to be visible to their owner and the owner must be able to influence their outcome. Goal owners must not simply be passive observers of the KPI moving towards or away from its target. They must be enabled to see a performance indicator drifting away from its target and take, what they hope will turn out to be, corrective action.
• Purposeful – When you say a KPI needs to be purposeful, this means that its achievement needs to contribute to strategic success. It doesn’t need to be a major contributor to strategic success. It could be a measure of a front-line action many line- managerial steps away from senior leadership. Yet it could be a critical cog in a much larger machine. The owner of this KPI needs to see the strategic importance of their actions. For this to happen requires a line-of-sight connection between their performance indicator and strategic success.

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