Before we go into greater depth about the different aspects of a corporate sustainability strategy, we will look at a measuring ‘tool’ that is used to help manage companies and their strategies.
Many management teams use their financial statements to look at their performance for the past period.
What if there was a tool that could be used to help ‘forecast’ your financial performance in the future? What if there was a way to track certain events which are integral to your company’s overall performance?
Key Performance Indicators, KPIs for short, are non-financial ratios used to help manage the direction of the company.
The manufacturing industry tracks direct labour cost per unit, % of waste from raw materials, and defect rates on a daily basis to manage operating processes, ensure cost control, and manage quality.
Retailers look at their sales volume per square foot and number of customer returns to help define the product placement, product selection, and how well sales people are fulfilling the needs of customers.
A few (but not all) ‘must haves’ for great KPIs include:
– Being measurable;
-. A benchmark so people know what is expected of them;
-. Timely reporting which allows management to react if issues occur;
– And multiple KPIs since you don’t want people to focus on only one activity while allowing other activities to fall to the way side.
The top 3 points can be linked back to Lean and Six Sigma management and the specific concept of DMAIC (Define-Measure-Analyze-Improve-Control).
When setting out a corporate sustainability strategy, KPIs are used as a scorecard to how your plan is being implemented. Timely KPIs allows for adjustments before the next set of financial statements are produced.
Next week, we will look at the environmental portion of a corporate sustainability strategy.