What Exactly is KPI Alignment?

KPI alignment is critical for successful strategy execution and lasting performance improvement. What exactly should KPIs align with, and why?

Let’s be direct: KPI alignment means that all KPIs or performance measures within an organisation logically relate to one another within the context of the organisation’s purpose, strategic direction, and operational design. These relationships between KPIs make it possible for everyone to see how they contribute to the organisation in the best possible way to excel at what it exists to do. And there are three types of alignment that are important to understand.

The first type of KPI alignment is to Strategic Direction

If we’re going to align our KPIs to anything, it’s best to start with strategic direction. The strategic goals define the priorities for the organisation to improve its capacity to deliver its mission and fulfil its vision. They point to gaps in organisational capability that are the most important gaps to close.

At the corporate or strategic level, this means that KPIs exist to monitor the essential performance results implied by the vision and mission (assuming they’re not just motherhood statements), as well as the current strategic goals or objectives. For a national sports agency, their mission is, in part, to increase participation in sport. A KPI aligned to this result is Total proportion of population participating in sport at least weekly. (If you’re thinking, “that’s not measurable”, think again — the data comes from a national recreation and sport survey, and census figures for population.)

In a PuMP Results Map, we add KPIs alongside the results they monitor, to make the strategic KPI alignment clearly visible and testable. (See how this looks in this example.)

Tip: A lot of strategic goals are not measurable, so make sure yours are written in measurable language by following this recipe for writing a measurable goal.

The second type of KPI alignment is to Business Processes…

When we think about aligning KPIs, we often think also about how KPIs cascade throughout the different levels of the organisation, and in a way that will maintain the alignment.

The way that the mission, vision and strategic goals are achieved is through the operations of the organisation. And — which may be surprising — operations don’t happen via the organisation’s structure but rather by its end-to-end business processes. A business process, like delivering a service to a customer, can involve many of the organisation’s departments or business units.

Aligning KPIs to business processes means that it has KPIs that monitor three things:

1. outcomes: the process’s greatest influence in support of the results the organisation exists to achieve
2. outputs: the qualities or quantities of most important outputs that the process exists to produce
3. in-process drivers: the results of critically important steps that make up process — and impact the outputs and outcomes

If Cash Flow is a strategic KPI for an organisation, then an outcome of the invoicing process that impacts this might be Cash-to-Cash Cycle Time. An output of the invoicing process that impacts Cash-to-Cash Cycle Time is timely payment of invoices, which might be measured by Debtor Days or Percentage Invoices Paid On Time. A critical step in the invoicing process that impacts on-time payment is itemising the invoice. If that’s not done accurately, the invoice likely won’t get paid. So an in-process measure could be Percentage Invoices With Errors.

Tip: Follow this example of how to meaningfully measure a business process of billing in a freight company, with a strong customer focus.

The third type of alignment is to Business Units…

Organisations that don’t yet understand their business processes are not ready to align KPIs and performance measures to processes. So instead they’ll align their KPIs to business units, or the departments or functional areas demarcated by the organisational structure.

When KPIs are aligned to business units, the logic is similar to aligning them to processes: the business unit has KPIs that monitor the most important performance results that it exists to achieve, as well as KPIs that monitor its greatest influence in support of the results the organisation exists to achieve.

If it’s the Human Resources department, their performance results might include fast recruitment of staff into vacant positions, staff have all the skills required of their roles, and — given a strategic priority to improve organisational culture — staff are fully engaged with the organisation’s purpose. If the HR department’s KPIs and performance measures are designed to monitor those performance results — and any other results that support these — then their KPIs are aligned.

Tip: It’s important to treat support functions a bit differently to find their alignment to the organisation’s purpose and strategy.

But there are a few things NOT to align KPIs with…

All too often people will look for KPIs before they know what the performance results are that matter. Measures for measurement’s sake is a waste of time and effort and attention. If our rationale for deciding to measure something is that we have some available data, or an industry benchmarking report, or a list of KPIs related to our functional area that we downloaded from a KPI library or database, we must hit the brakes!

The common underlying theme for any kind of KPI alignment is that we align our KPIs with deliberately chosen performance results. Spending time to work out the performance results to align KPIs with is the vital step before we worry about what the KPIs themselves will be.

The power of having KPIs, and the power of having those KPIs aligned with the organisation’s strategic direction, is that it pulls everyone and every process within the organisation together, so we spend the least amount of time and effort to achieve its goals and fulfil its purpose.