Instruments and Methods for the Integration of Company's Strategic Goals and Key Performance Indicators

Posted: 15 Jan 2015

See all articles by Armand Faganel

Armand Faganel

University of Primorska - Faculty of Management

Aleksander Janeš

University of Primorska - Faculty of Management

Date Written: January 14, 2015

Abstract

Purpose – The purpose of this paper is to explore and clarify the cause and effect relations between key performance indicators (KPIs) which significantly contribute to the benefits of the business processes exploitation in the Luka Koper, d.d. Company.

Design/methodology/approach – The paper developed a single equation microeconomic error correction model (ECM) with the Engle and Granger two-step method. With the ECM approach, the paper performed application on the KPIs and estimated short- and long-term effects between them.

Findings – From the final ECM model, it can be recognized that the total turnover has been increased, by increased maritime throughput. Increasing the maritime throughput means a reduction in electricity consumption per tonne reloaded and increasing consumption of fossil fuels and water. Revenue per unit of maritime throughput has a negative regression coefficient, which may lead to an increase in income or increased amount of maritime throughput and simultaneously reducing the cost per tonne reloaded. Results are reflecting the impact of sharp declining in maritime throughput with the greatest added value in the years 2007 and 2008. All these results and observations suggest that an error correction mechanism exists and that the paper set up a stable model, which describes the dynamics of short-term determinants of the long-term service performance.

Research limitations/implications – The following limitations exist to this study: sample size and quality of the data that were available and the quantitative analysis in the four perspectives of the Kaplan and Norton's balanced scorecard (BSC). Since this is the case study that investigates the impact of the KPIs' on the results and causalities between them, the paper also encountered the data, which are treated as a business secret. Further research into the impact of introducing the four perspectives of the BSC to monitor the implementation of strategies and strategic projects is recommended.

Practical implications – The presented quantitative approach is useful in combination with a qualitative approach, which is a common practice in determining the causal relations resulting in the strategic map of BSC. Simulations of the developed model are possible on all levels of management, by combining the KPIs, and consecutively acquire new knowledge about their relations. Developed quantitative approach supports improving the monitoring of operational efficiency of an organization, improving business processes, project efficiency and achievement of the strategic goals.

Originality/value – Developed approach supports identification and classification of strategic goals and their KPIs that are best suited for inclusion in the BSC strategic map, improvements to the monitoring of implemented strategic initiatives and achievement of strategic goals.

Keywords: Balanced scorecard, Cybernetics, Business processes, Diagnostics, Performance measurement systems, Strategic goals, Key performance indicators

JEL Classification: M00

Suggested Citation

Faganel, Armand and Janeš, Aleksander, Instruments and Methods for the Integration of Company's Strategic Goals and Key Performance Indicators (January 14, 2015). Available at SSRN: https://ssrn.com/abstract=2549623

Armand Faganel (Contact Author)

University of Primorska - Faculty of Management ( email )

Cankarjeva 5
Koper, 6104
Slovenia

Aleksander Janeš

University of Primorska - Faculty of Management ( email )

Cankarjeva 5
Koper, 6000
Slovenia

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