Strategic Objectives and KPIs
Strategic Objective Review
Let’s review the objectives you set that are directly influenced by your Operations department. Some of your objectives will need to be carried out by a number of interdependent departments. For instance, you will quite likely have set a profitability objectives. For your company to be profitable, your operations department will have to be performing at a specific level, creating product, distributing product, or delivering services. Your sales department will have to be busy selling these same products or services, and your marketing department will be responsible for marketing them. Each department will have targets, and action plans for reaching those targets. You will have chosen Key Performance Indicators (KPIs) to let you know about progress made towards those targets, and a system for collecting and reviewing your KPI data.
What you will see as you lay out the objectives that your operations department has influence on is that in most cases, your operations department will influence progress towards the Strategic Objective, but each Strategic Objective will need to be broken down into supporting departmental objectives. For Example, your operations department influences profitability in a number of ways, but in most cases it does not have the power in and of itself to determine profitability. For that reason, you will want to set objectives for your operations department that support each overall Strategic Objective. Profitability is made up of two components, revenues and expenses. You may decided that your operations department will need to reduce expenses in order to contribute to the overall profitability goal. On the other hand, you may decide that your Operations department will need to create a new product line in order to increase revenues, and you will have to increase your operating expenses in order to achieve a significant profitability increase. Whatever the case, you will need to decide on a course of action, set your targets, put action plans in place to achieve them, and KPIs in place to measure your progress.
Review your Strategic Objectives. Do they still make sense? Are they Specific? Measurable? Actionable? Realistic? Time Bound?
|1||Production @ 5000 units||Juanita||Jan 1 20XX||Production|
|2||Defects @ -2%||John||Jan 1 20XX||Defects|
|3||Accident free days +200||Jeff||Jan 1 20XX||Safety|
|4||98% of deliveries on time||Bob||Jan 1 20XX||Deliveries|
Key Performance Indicators
In Management, you began measuring progress toward your goals with Key Performance Indicators. Here you will continue this process, but with a focus on Operations. You will record the KPIs, or “vital statistics” that let you know what is happening on the shop floor, and how your operational team is performing.
Following is a list of sample KPIs concerning your Operations. They represent some items that it is important for some businesses to measure and monitor. Remember to treat performance management holistically. It is not a good idea to look around a position, department, or company and randomly start measuring things. Measure things that give you information about progress towards your goals. If you can't figure out which goal your data is supporting, you are likely wasting resources collecting meaningless data.
See “Management: The Art and Science of Getting Things Done” for more information on Key Performance Indicators.
As a brief reminder, Qualitative Indicators are measured subjectively (i.e. your best guess), while Quantitative Indicators are measured objectively (i.e. counted).
Productivity: This is good to track in terms of units as well as dollars. Waste: Especially if you are attempting to operate in a Lean environment. Costs: You may want to track per unit costs, as well as departmental and overall costs. Customer Satisfaction: This can be difficult to track. You may end up needing to use an indirect measure like repeat business or # of complaints.
The important thing to keep in mind is that you have consciously decided on where you want your business to go, and written it down in the form of a Strategic Objective document. The things that your business does every day are the way that you will get there. Your KPIs are built to keep you abreast of the progress you are making towards those objectives. If you have decided on an objective that is important to you, make sure you have a KPI that keeps track of your progress. Some other Operational KPIs that may fit with your objectives might be:
- Training Costs
- Staffing Levels
- Staff Skill Levels
- Delivery Timing
- Break Even
- Innovation levels
Make sure you tailor your KPIs to your specific situation, don't just start measuring something because you think you should. Measure things that tell you about your progress toward your goals.
In this chapter you should have designed, shared, and made a plan to review your:
- Objectives for your Operations Department based off of your company's Strategic Objectives.
- 3-5 KPIs to track your progress toward your top Operational Objectives.