Key Performance Indicators (KPIs) are quantifiable measures used to evaluate success in relation to an organization's most important goals. To be effective, KPIs must be directly and explicitly linked to the organization's strategic objectives. This alignment ensures that the performance being measured contributes directly to the overall success and long-term vision of the business. Without this connection, departments may focus on metrics that are not critical to the organization's strategic direction, leading to wasted resources and a failure to achieve overarching goals. This principle, often called "cascading," ensures that operational activities support the highest-level strategy.
References:
1. Kaplan, R. S., & Norton, D. P. (1996). The Balanced Scorecard: Translating Strategy into Action. Harvard Business School Press.
Page 9: The authors state, "The Balanced Scorecard translates an organization's mission and strategy into a comprehensive set of performance measures that provides the framework for a strategic measurement and management system." This foundational text establishes the direct link between strategy and performance measures (KPIs).
2. CIPS (Chartered Institute of Procurement & Supply). (2018). Procurement and Supply in Practice (L4M8 CIPS Module Study Guide).
Section 1.3, "Aligning procurement and supply with corporate strategy": The official CIPS L4M8 curriculum emphasizes that performance measures, including KPIs, must be developed to demonstrate how procurement activities are contributing to the achievement of corporate strategic objectives. The effectiveness of the procurement function is judged by its alignment with and contribution to these goals.
3. Parmenter, D. (2015). Key Performance Indicators: Developing, Implementing, and Using Winning KPIs (3rd ed.). John Wiley & Sons.
Chapter 2, "The Great KPI Misunderstanding," Page 15: Parmenter clarifies that KPIs are "the vital navigation instruments that help an organization understand whether it is on a successful journey or not. They are linked to the organization’s critical success factors (CSFs), which are, in turn, derived from its strategic objectives."
4. Bourne, M., & Bourne, P. (2011). Handbook of Corporate Performance Management. Wiley.
Chapter 4, "Developing Key Performance Indicators," Page 57: The text explains, "KPIs should be derived from strategy. If you cannot explain the link back to a strategic objective, then it is probably not a key performance indicator." This highlights the necessity of a clear and defensible link between a KPI and a strategic goal.
