What is a quality KPI?

Mary Ellen Smith

 

Posted in: Reporting, Speaking Out, Strategy

What is a quality KPI?

June 06, 2016

What does an effective CSR KPI look like? Mary Ellen Smith explains that KPIs are meant to provide transparency in performance, whether good or bad.

 

Nowadays, companies’ key performance indicators (KPIs) are no longer merely for reporting financial performance. They are used to monitor everything from employee satisfaction and carbon emission reductions to diversity, to community impact. In our data-rich world, there are endless possibilities.

But what should an effective KPI look like? A plethora of information can be found in a quick internet search. However in searching for specifically CSR KPIs, it becomes more complicated. Sustainability reporting standards like SASB and GRI make great starting points for developing a portfolio of KPIs, but companies also need KPIs that match their unique circumstances and chosen sustainability journey.

A common starting point is to look at best-practice companies. For instance, Nike’s Sustainable Business Executive Summary sets out a wide variety of KPIs and targets, arranged around its three strategic aims. Nike tracks Code of Conduct violations in contract factories, with the goal of eliminating excessive overtime and sourcing 100% of products from factories meeting Nike’s sustainability standards. The KPI is clearly relevant to a material issue for Nike. Results are displayed in table form, providing a clear format for the reader.

The temptation for many companies is to try to set a KPI for every issue imaginable – or at least those that are easy to measure. But when it comes to effective KPIs, the answer is quality over quantity.

What sets quality KPIs apart from your run-of-the-mill KPI is that a quality KPI:

  • Aligns with your company’s material issues: using KPIs to improve in the areas most material to your business and stakeholders also aligns your KPIs to your company strategy.
  • Matches a clear goal or target: if you don’t have a goal, what are you measuring progress toward?
  • Is transparent: can my stakeholder glance at this metric and understand what our general goal is?
  • Is sector specific: does this KPI address the nuances of my company’s industry or sector? Does it allow performance to be compared with peers and competitors?
  • Organization-wide: KPIs should touch on every level of the organization and be pertinent to stakeholders.
  • Has context: what was the performance year-to -year? How is the KPI managed and measured? What is our approach to making improvements?

Ultimately, KPIs are meant to provide transparency in performance, whether good or bad. It is normal for KPIs in CSR to have a fluctuating story of performance, as it can be seen as an indication of a company taking on a challenge and committing itself to action. As Corporate Citizenship’s recent paper, Sustainability Strategy: Simplified, notes, if a target is achieved too easily, stakeholders may view the company as lacking in ambition: “Success without effort is a hollow victory.”

KPIs traditionally help a company’s Board to measure performance on a given issue. But quality KPIs will also help companies advance in a wider scope of CSR efforts, delivering benefits for a wide range of stakeholders and synergistically boosting business value.

 

Mary Ellen Smith is a Senior Researcher at Corporate Citizenship.

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