The other hot topic at last Friday’s ICAEW round table on Business Intelligence was KPI’s.
Toby Wilson (Finance Director of Microsoft UK) explained that Microsoft uses 30 KPIs despite the diversity of its diverse business (XBox, Mobile, Live services, Software, Consulting etc.). These are set top down and although they are a constraint they are fair because everyone knows the rules of the game. Once you get green on so many of these (including revenue of course) then an FD has flexibility to innovate to be more successful.
One of the other finance directors on the panel countered this by stating that there was only one KPI needed by a business – cash. His assertion was that many a profitable business has gone to the wall because it actually had no money, and in the current credit crisis this is even more likely.
However the sorts of KPI’s used at Microsoft and many other companies I have worked for are lead indicators and monitoring these will lead to sustainable long term growth. This is where the balance in balanced scorecard comes in. In this case balance between success today and success tomorrow.
A typical balanced scorecard might look like this with KPI’s under each heading
- Financial health including cash, contribution margin, cost base are showing you how you are doing today.
- Growing the business. Improving market share, by retaining existing customers and attracting new ones.
- Innovation. Developing and delivering new ideas to maintain your edge of the competition.
- People. Retaining and attracting the right talent to your organisation.
The other key facet of the balanced scorecard and its associated KPI’s is to derive departmental, team and individual scorecards from the top level scorecard for the company and to link individual bonuses and performance to these.
This approach was worked in numerous companies from the global Microsoft sized organisation down to small businesses with under 50 employees, since the theory was first published by Robert S. Kaplan and David P. Norton in 1992. To conclude I am sure that the focus it provides to all staff in an organisation is even more important today than it was then, but it is also important to never forget about financila health whether your own or the company you work for.