Cascading KPIs To Drive Business Performance

The practice of “cascading” KPIs aligns strategic objectives with business unit targets and performance measurements to drive positive results. This involves linking high-level objectives with departmental objectives and KPIs to create a clear line of sight from the top down.

In this 3-minute post, we examine some key business objectives and cascading KPIs that can be used to analyze performance to the objectives.  While many of the KPI examples focus on performance management for manufacturing and distribution businesses, they also apply to numerous other industries with similar operational structures.

For additional KPI concepts and best practices, we welcome you to download Silvon’s Definitive Guide to KPIs.

Cascading KPIs for Sales

Strategic Corporate Objective:

• • Increase Revenue

Departmental Objectives:

• • Increase Sales Volume
  • Improve Sales Productivity

KPIs:

• • Sales Volume:
    • Number of Units Sold, Revenue Generated

• • Sales Productivity:
    • Number of Sales Calls Made, Average Time to Close a Sale

Cascading KPIs for Inventory

Strategic Corporate Objective:

• • Optimize Inventory

Departmental Objectives:

• • Improve Inventory Accuracy
  • Reduce Inventory Holding Costs
  • Increase Inventory Turnover

KPIs:

• • Inventory Accuracy:
    • Cycle Count Accuracy, Shrinkage Rate, Stock-Out Rate

• • Inventory Holding Costs:
    • Carrying Cost of Inventory, Obsolete Inventory, Stock Turnover Ratio

• • Inventory Turnover:
    • Inventory Turnover Ratio, Gross Margin Return on Investment (GMROI), Days Inventory Outstanding (DIO)

Cascading KPIs for Purchasing

Strategic Corporate Objective:

• • Reduce Costs and Improve Supplier Performance

Departmental Objectives:

• • Reduce Purchase Costs
  • Improve Supplier Performance

KPIs:

• • Purchase Costs:
    • Cost Savings, Cost Avoidance, Cost Per Unit

• • Supplier Performance:
    • On-time Delivery, Quality Performance, Lead Time

Cascading KPIs for Production

Strategic Corporate Objective:

• • Improve Production Efficiency

Departmental Objectives:

• • Increase Equipment Uptime
  • Reduce Waste
  • Increase Throughput

KPIs:

• • Equipment Uptime:
    • Mean Time Between Failures (MTBF), Mean Time to Repair (MTTR)

• • Waste Reduction:
    • Scrap Percentage, Reject Percentage, Rework Percentage

• • Throughput Improvement:
    • Units Produced, Cycle Time, First Pass Yield

Cascading KPIs for Customer Relationship Management

Strategic Corporate Objective:

• • Increase Customer Satisfaction and Retention

Departmental Objectives:

• • Improve Customer Service Quality
  • Increase Customer Engagement
  • Enhance Customer Loyalty

KPIs:

• • Customer Service Quality:
    • Response Time, First Contact Resolution (FCR), Average Handling Time (AHT)

• • Customer Engagement:
    • Number of Interactions, Frequency of Interactions, Engagement Rate

• • Customer Loyalty:
    • Net Promoter Score (NPS), Customer Churn Rate, Customer Lifetime Value (CLV)

Cascading KPIs for Finance

Strategic Corporate Objective:

• • Increase Profitability and Financial Stability

Departmental Objectives:

• • Improve Revenue Growth
  • Control Costs
  • Optimize Cash Flow

KPIs:

• • Revenue Growth:
    • Sales Growth, Market Share, Customer Acquisition Cost

• • Cost Control:
    • Operating Expense Ratio, Cost per Unit, Procurement Savings

• • Cash Flow Optimization:
    • Days Sales Outstanding (DSO), Days Payable Outstanding (DPO), Cash Conversion Cycle

Cascading KPIs for Trade / Promotional Marketing

In this final example, here are some potential cascading KPIs for a trade marketing department:

Strategic Corporate Objective:

• • Increase Sales Volume and Market Share

Departmental Objectives:

• • Improve In-store Product Visibility
  • Increase Trade Promotion Effectiveness
  • Enhance Channel Partner Engagement

KPIs:

• • In-store Product Visibility:
    • Share of Shelf (SOS), Out of Stock (OOS) Rate, On-Shelf Availability (OSA)

• • Trade Promotion Effectiveness:
    • Promotion Sales Lift, Promotion ROI, Sell-through Rate

• • Channel Partner Engagement:
    • Joint Business Planning (JBP), Distributor Scorecard, Customer Satisfaction (CSAT)

The Bottom Line

Enterprise-level alignment using a waterfall / cascading model like the one above is very effective for driving business performance because it provides a clear distinction between tasks, generates synergy between organizational business units, and can facilitate effective communication at all levels. Employees also have a clear picture of their contribution to organizational performance which often leads to higher levels of engagement.

Fortunately, modern analytic tools like Silvon’s Stratum solution offer pre-defined metrics and data visualization capabilities to simplify the process of creating and sharing KPI dashboards and reports to management and departmental teams throughout the business.

For additional concepts and best practices related to KPIs, feel free download Silvon’s Definitive Guide to KPIs.