KEY FIGURES AND BENCHMARKING

Meaning of key figures

Key figures are calculated to get objective picture about the situation of a company. Especially in
large companies there are many things to be controlled. Without a functional key figure system, a
change of situation can be left in the dark. Usually people wake up to develop operations before or
after some kind of crisis.

Key figures are used generally for the following purposes:

- steering (planning and control)
- alarm (early warning)
- diagnosis
- learning and communicating
- motivation

Key figures include essential, collective and condensed information in readable form. The meaning
of a key figure system is to get optimum amount of information from limited number of figures.
Consequently key figures are selected information. With key figures it is also possible to get a
conception of the development of the company.

When using the key figures one has to be sure that they are reliable and usable. This means that one
has to be sure if a figure measures the satisfaction of a certain goal or something else and in which
accuracy. It is also important to remember that things outside the measurement aren't forgotten.

When measuring the enterprise, creativity and innovativeness has to be emphasized. Goals have to
be written and known by all of employees. If there are several goals, they have to be put in order
beforehand. In conflict situation consolidation of goals has to be done with the employees who try
to reach these goals and whom they affect.

Basis of key figures

Key figures have e.g. following characteristics and demands:
1. A key figure includes essential and condensed information in a readable form
2. A key figure has to be created from essential goals
3. A key figure creates an indicator, the value of key figure creates measuring result
4. Especially in qualitative (not quantitative) goals the precise definition of the scale is a
subjective event (e.g. customer and personnel inquiry)
5. The value of the key figure has to be used by decision-makers early enough
6. In certain situations responding alarm system can be built on the strength of key figure
7. With the key figure used in steering at least a part of the affecting factors have to be known

When using key figures it is an advantage if they are emphasizing generally accepted things and at
least people who are responsible for reaching the goals understand the content of measuring figure.
It is also important that figures have been determined in co-operation with the person(s)
responsible and the management, and that people commit to them. The basic information of key
figures has to be reliable; the reporting of figures should happen at the right time and the
calculation of figures shouldn't involve excessive work.
Mere calculation of the key figures isn't enough. Figures have to be used in business management
and the results have to be followed and when necessary one has to take development actions. It has
to be determined to whom the results will be reported. Everyone doesn't need all information. One
has to get enough information and it has to be essential to its recipients. Useless information might
even attract attention away from important things. It is also important to determine where the
information will be dealt. Usually it isn't enough to know to whom the information will be
reported. It is more essential to know where the information is used in support of decision-making.

One should also determine when the measuring result is good or bad. This means that every figure
should have a target value or some rule of thumb how to estimate it. Key figures don't have to be
just numbers. It is good to discuss about reaching the goals and that should be associated with the
rewarding (which doesn't have to be in money).

The possibilities which decision-makers or executive person has to influence to the value of the
figure should be clarified. If a person doesn't have an opportunity to affect the value of the figure
(even in theory), the figure doesn't have any functional value.

There are naturally many optimization dangers. Minimization or maximization of some value
might lead to a negative result with some other key figure.

To every key figure a person responsible must be assigned. In that way the aim and reaching it is
important to someone. The person responsible should have the possibility to influence to the figure
in question. He should also have required skills and resources.

In changing circumstances the key figure system must change, too. Someone has to be responsible
for updating the key figure system.

If the company wants to be effective, the motivation of the personnel is one of the key issues.
Personnel should have information, skills, attitude and enough resources to succeed.

Performance measurement
A measuring system has to answer to the following questions:
1. Where have we been?
2. Where are we now?
3. Where do we want to go?
4. How are we going to get there?
5. How do we know we are there?

A key figure system includes the principle "you get what you measure". This means that mere
information has an effect to employees behavior. This is even more effective if the measuring
results are analysed and necessary actions started from the basis of results. On the other hand, by
measuring wrong things one will get unwanted results. For example by measuring the load rate of
machines, the result might be unnecessary production with poor quality.

Measuring wrong things will cause "wrong alarms". On the other hand, if important things aren't
measured, there is a "hole" in key figure system. In key figure systems there are usually both of
these figures. Usually one measures figures, which are easy to measure, but which don't always
describe important things. People measure what has always been measured. Usually the
consequences are measured instead of reasons. However only by setting down to the reasons it is
possible to get the operations better. For example with customer enquiries it should be first
disentangled the factors which the customers appreciate and then from this basis develop the key.

Performance measurement can be used for learning business and manufacturing processes,
accomplishing continuous development, measuring characteristics of organization or process,
communicating strategy, goals and the priorities. Additionally, performance measurement can
facilitate problem solving and steer change processes.

Good performance measurement

- is simple, concrete and visible
- includes a target value
- includes continuous development (Kaizen)
- has consequences to the one(s) concerned
- is person- or small group -specific and the ones concerned know how they can affect to the
figure
- is not everlasting
- is deducted from the strategy and the goals of the company
- is based on the principle that every key figure has an owner (person responsible)

Definition of benchmarking
Benchmarking is a comparative method where one tries to learn, when applicable, adapt own
processes to the way of the most successful company on the market. Benchmarking is an effective
tool, which
- directs the development process to focus things in trading
- helps to understand company's own processes
- makes it easier to define goals by means of external examples and guides the development
process

The essence of benchmarking is the process of identifying the highest standards of excellence for
products, services or processes and then making the improvements necessary to reach those
standards.

Questions connected to benchmarking are:

- In which matters should we become better?
- How much better?
- How good is it possible to come?
- How to accomplish the change?

There are three types of benchmarking:

- strategic,
- performance and
- process benchmarking.

Strategic benchmarking is used to compare organizational structures, management practices and

business strategies. Performance benchmarking means the analysis of relative business
performance. Process benchmarking is used to compare operations, work practices and business
processes without regard to industry affiliation.
Benchmarking process
The benchmarking process has several general steps. These steps may be applied in different ways.
Here the benchmarking process has been decomposed into eight steps:
1. Identify the object of benchmarking study
2. Select the superior performer (benchmarking partner)
3. Study the own process
4. Study the chosen (superior) process
5. Determine the differences in performance
6. Set performance goals for improvement
7. Implement plans
8. Monitor results and develop further.

The first step in benchmarking project is to decide what will be benchmarked. Organization should
benchmark processes that are aligned with the company’s strategic direction. After that the
benchmarking partner and data collecting method have to be identified. Data analysis (steps 3-5)
involves determining the current performance gap between the company and the benchmark. The
goal of this analysis is to determine if the benchmarking partner is indeed better, why it is better
and how its practices can be incorporated or adapted for use in own company. Determining how the
best practices can be used in the company leads to the next step in benchmarking: integration of the
results. This step includes communicating the findings of the benchmarking study, gaining
acceptance for these findings and establishing functional goals for implementing the findings.
Implementation and monitoring the results are the last major steps in the process. Benchmarks must
be recalibrated from time to time.

Benchmarking partners may include units of the same organization, competitors in the same or
different geographical markets and organizations in related or unrelated industries, in the same or
different countries. Classifications of benchmarking found in the literature are mainly based on the
type of partner, as follows:
- Internal benchmarking means comparison of performance of units or departments within one
organization. Comparison can also be made of similar products or services of similar business
units.
- In competitive benchmarking the comparison of performance is made with direct product
competitor. In this case, comparison can be made of products or services and business
processes.
- Specific function comparison with best business practises in two or more organizations in the
same industry is called functional benchmarking.
- Generic benchmarking is search for the best practice irrespective of industry. It is similar to
functional benchmarking but the aim is to compare with the best in class without regard to
industry.