The Need to Understand KPI Theories to Build a Successful Business

KPI theories focus on quantifiable measurements that reflect the critical success factors of any entity. These theories help define what is important to an organization to help it achieve success. For example, a computer store that dreams of opening 5 new branches in the next 2 years would need to establish certain parameters to be able to realize its goal. These parameters should be something like this: develop ten new loyal corporate clients in each area it intends to enter; add 20 new products, and create an excellent after sales service with zero back jobs. There has to be specific goals. This way, you can determine your progress, measure your growth, and calculate the areas that need more attention to succeed in your business.

There are several theories on how to develop these factors. You have to decide which one will work for you because no business has the exact specific resources, needs, and objectives. Whichever you choose, first and foremost, you must stick to your company goals, and adjust your profile as your organization grows and changes.

One, you must consider your organizational goals. For instance, you should not consider profit as the most important measure if you are a school entity. You could, however, consider your success rate in your students finding employment after graduation. On the other hand, if you are a company that is profit-oriented, you should focus on fiscal measures defined by gross and net profit margins.

Two, the indicators you choose to adopt to your organization should be measurable in specific numbers. Each indicator should have a target that can be attained within a specific time frame.

Many aspects in a growing company are measurable. This does not mean you should consider all aspects of the company as critical to the company’s success. You have to limit this to the essential factors. This will help everyone in the organization maintain focus. It is just like trying to work on a hundred different projects at the same time within a limited period. It cannot be done properly.

What an organization can do is to establish, at most, four main goals, and have minor goals for each.

There is also the carrot and the stick theory wherein you have measurable goals with corresponding rewards. This is also called the Equity Theory. It is a performance management tool that may come in the form of money, distinctions and awards, and company perks, like cars, paid vacations, or promotions. A highly motivated worker will feel he is getting recognition for work done over and above what he is required to do.

There is also the Personality Trait Theory. This requires you to know what kind of people you want to hire for the company. This would work if you are in a creative work environment. Some of the favorable traits to look for would be self-confidence, independence, tolerance of ambiguity, persistence, and intuition. These are the qualities that help creative people stand out. These are what you should look for, not just in your employees, but also in your business partners.

KPI theories help you decide what guiding force you need to help your organization and workers succeed. By adopting some form of motivational system, you can maintain focus and grow a prosperous business with employees who are content and internally driven to help you and your company.

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