Improving strategic decision making A CIMA case study
Page 5: Performance indicators
Key performance indicators (KPIs) are an important management tool and help to monitor the achievement and progress towards targets. A well-made set of KPIs or metrics enables a business to know if it is on the right track. Data used in this way can improve efficiency ('doing things right') and effectiveness ('doing the right things').
As management accountants are familiar with the strategy for the whole business, they can work with department managers to identify the appropriate measures for recording progress in each area. For example, Tesco uses the 'Tesco Steering Wheel' as a tool to drive performance. This states key performance indicators for people, finance, customers, operations and the community. Every store has its own steering wheel and its own target KPIs. Quarterly results are reported to head office. The table shows the company's performance against two KPIs.
The carrier bag target has been easily achieved. The missed target on landfill avoidance will trigger a new round of action for 2009 or a modified KPI if the target is found to be unachievable. Using the feedback from the KPIs allows Tesco managers to make informed decisions and adjust strategy if necessary.