ROLE AND IMPORTANCE OF KEY PERFORMANCE …

1 1. INTRODUCTIONNew business conditions whereinformation is the most important resourceimpose new approaches in measuringperformances of organizations, related totraditional PERFORMANCE measurement systemwhich evolved just financial and accountingindicators. One of the newer approachesrefer on measuring performances oforganizations via KPI. KPI are financial andnon- financial measures that organizationsuse to reveal how successful they were inaccomplishing long lasting goals. In order toconstitute effective system of performancemeasurement it is very important to havedefined and standardized all processes withinthe AND IMPORTANCE OF KEY PERFORMANCE INDICATORS MEASUREMENTD ragana Velimirovi a*, Milan Velimirovi b and Rade Stankovi aaHigher school of occupational education, upana Stracimira 9, 32000 a ak, SerbiabToyota Serbia, Zrenjaninski put 26, 11210 Belgrade, Serbia(Received 21 June 2010; accepted 11 October 2010)AbstractKey PERFORMANCE indicators are financial and non financial indicators that organizations use inorder to estimate and fortify how successful they are, aiming previously established long lastinggoals.

2 Appropriate selection of indicators that will be used for measuring is of a greatest IMPORTANCE . Process organization of business is necessary to be constitute in order to realize such effective andefficient system or PERFORMANCE measuring via KPI. Process organization also implies customerorientation and necessary flexibility in nowadays condition of global of process organization, the way of KPI selection, and practical example of KPImeasuring in Toyota dealerships are presented in this : key PERFORMANCE indicators (KPI), process approach, Toyota dealerships*Corresponding author: Journalof ManagementSerbian Journal of Management 6 (1) (2011) 63 - 72 of process approach could beseen through the fact that it is a base of twonowadays management systems: strategicmanagement, via BSC, and technicalstandardization, via to that fact in first part of this paperwill be explained the meaning of processapproach, and a way of constituting it.

3 Insecond part of this paper will be explainedwhat are KPI, and IMPORTANCE oforganization performances measurement,and in third part of the paper will beexplained and shown some of the KPI thatToyota dealerships uses in their PROCESS APPROACHAs it was previously said constitution ofprocess organizations is a necessary base forconstitution of measurement system via statement could also be find in theliterature: Business process are base fororganization functioning because companiesare constituted basically of processes, notproducts or services. On the other words,business management of some organizationsmeans process management (Skrinjar et al.,2007; Stefanovic et al., 2010).Process definitions are base on which thewhole philosophy of organizationfunctioning have been constituted. Theprocess approach means that attention isshifted from end output (products andservices) to the activity chain that shapes thisoutput (Rentzhog, 1997).

4 IMPORTANCE ofprocess orientation arise form the first half ofXX century, where Walter A. Shewhartsstated that highly qualified product could beget only by process orienatation constitutions arevery important. Traditional ways of businessthat imply functional and hierarchicalapproach is not enough good in nowadaysconditions, where rapid changing of businessconditions seeks flexibility. Traditionalorganizations are too rigid to those approach enables organization tosteer their business to main duty, which is tomake values that will satisfy their of process organizations are(Heleta, 1998):1. Put customers claims at the firstplace,2. Constitute interfunctionalmanagement,3. Defined process owners,4. Activities are done logically,5. Employees do just they need to do,6. Internal relation suppliers - customerare dealerships whose control ofeffectiveness and efficiency of business, viaKPI, will be presented in this paper, areconstituted as process organizations.

5 In suchorganization, all processes are prescribed andstandardized. The hierarchical levels ofdefined processes are given in figure of those levels are defined asfollows:1. Toyota customer oriented process(TCOP) are essential part of activities atdealership; and every action have asignificant role in accomplishing perfectsituation within Elements of Toyota operationactivities (TO) like people, object andinternal procedures that are focused toaccomplish TCOP3. Business management of after-salesactivities (MGMT) and performancemeasurement system put appropriateattention to operation } / SJM 6 (1) (2011) 63 - 723. ROLE AND IMPORETANCE OFMEASURING ORGANIZATIONALPERFROMANCES VIA KPIP reviously described process organizationis a necessary base for KPI defining. Suchsystem of standardized activities allowsadequate measuring of of a measuring is measuring is a base for continualimprovements of organization performancesthat is one of the most importantmanagement principle (Besic & Djordjevic,2007).

6 One proverb may be find in literature: If you want to improve something, you haveto measure it (Radovic & Karapandzic,2005).An effective organization knows that ifthey don t have enough informations aboutprocess, product or service, they can tcontrol that part. There are large numbers ofvalues measured during work of someorganization. Lord Kelvin, British physician,jet 1891, spoke: When you can measuresomething that you are talking about, youknow something about it .To stay competitive, organization shouldmanage with employees, processes, planedactivities, reductions times, relations withsuppliers, and other parts of the for effective measuring ofperformances is used to understand, adjustand improve business in all department ofthe organization (Summers, 2005).Measuring performances of theorganization means qualitative, andquantitative expression of some results bychosen indicators.

7 Performancemeasurement enable to effectiveorganizations to express their success bynumbers. Selection of appropriate indicatorsthat will be used for measurement andappraisal of the performances is a veryimportant activity. Among all informationsthat can be get it is necessary to choose somecritical quantity that on the best wayrepresent the whole control function indicators ofperformances also have two next functions: Developing and guiding function because they present a base for formulatingand implementation of the strategy of theorganization, Motivation function inducemanagement to fulfill goals and motivate allstakeholders to realize those goals and oneven higher level (Pesalj, 2006; Stamatovi & Zaki , 2010 ).In all organizations, an employee knowsthat there are activities that are veryimportant for the management team. In senseof defining a control package of indicatorsthat represent success of some businessconception of Key PERFORMANCE indicatorswere appeared.

8 Key PERFORMANCE indicators(KPI) are financial and non-financialindicators that organization uses to testifyhow successful they were in achievement oflong lasting are static and stable indicators thatcarry more meaning when } / SJM 6 (1) (2011) 63 - 72 Figure 1. Hierarchical levels of Toyotaprocesses (Radojevic et al., 2009)information. They help to remove theemotion away from object of the business,and get one focused on the thing that job isreally about, and that is making KPI IN TOYOTA DIELERSHIPSTo ensure ease of reference, as well ascomprehensive indexing, one of the mosteffective approach in KPI defining, is todivide the whole business into appropriatesections, which represent different parts five divisions are SalesDepartment, Service Department, PartsDepartment, Body shop and BusinessManagement. In the further text, some of thebasics KPI of all of the divisions will bepresented, just to show the non complexity ofdefining and using them.

9 Some of theindicators that ware measured in onerepresentative Toyota dealership will be KPI in Sales departmentVehicle Gross Profit(Invoice Price ofVehicle Cost price of Vehicle)The basic understanding of Gross Profit issimply sales less the cost of those the sales department there are manythings that are sold that are all contained onthe sales invoice such as accessories,warranty and of course the vehicle profit is often expressed in percentageof vehicle sales price, for example:Gross profit (%) = (Vehicle Sales price Vehicle cost price)/(Vehicle SalesPrice)x100 Present economic crisis effect car dealersthe most. Quite often they struggle to retainbusiness with positive GP. Market slowdowncould influence sales even with negative sales per sales person(Annualized unit sales/number of Salespeople)This KPI is made of Annualized unitsales. Simply, measures the average numberof units a Sales person sells in 1 year.

10 Thisstatistic provides information of averagesales team PERFORMANCE and clear perceptionfor each member of the team to accuratelyasses the strengths and benchmark in car dealership is150 units per annum for newcomer salesperson and well established salespersonshould sell to 200 units per car sales are dropping down in yearsof crisis. It is important to retain Vehicle GPas well as New Car Sales in goal to achievegood business results. (Volume quantity andquality of sales).Stock turn(Annualized unit sales / Unitsin stock)Vehicle stock turn provide information ofnumber of times that vehicle stock turnoverin one year. This KPI is very importantbecause it provide convenient monitoring ofstock. The faster dealer turn vehicle stock,less money is needed for invest and thatmeans more profit. Again this KPI tends toincrease dealer profitability in vehicles andspeeds circulation of the case of low Stock turn,management should invest in training ofsales person, and marketing datas about plan and sales ofnew cars during a period of one year areshown on figure } / SJM 6 (1) (2011) 63 - KPI in Service DepartmentProductive Staff:Non-Productive StaffThis KPI measures the ratio betweenproductive staff and non-productive staff.