Questions and Answers. What are the most common problems with implementing them and getting good value from them. This article is about the philosophy of the application of KPIs
The term Key Performance Indicator has become standard jargon for management information which tells an organisation or any part of an organisation in figures how to do better. All of the best organisations view them as best practice and use them as their central nervous system, to link the brain and the body. More than 50% of the fortune 500 use the Balanced Scorecard and therefore must be using KPIs to construct the BSC. It is vital to link operations to strategy and the BSC is the most popular way of doing it.
Probably even more importantly good KPIs will motivate people in the front line because they can see, from the figures, the effect they are having on performance ….and so can get a ‘win’… some sense of achievement in their work.
That dictates that there must be three functions of KPIs and their ‘cousins’
- To show results across the business (KRIs)
- To provide knowledge of how to improve processes (KPIs)
- To motivate and involve people…therefore to cause action and more action.
Looking closer at these three functions gives us a set of rules for implementation. The KPIs must show the results of the process and indeed of the business in what are called High Level KPIs (or Key Results Indicators). These are output KPIs to tell us whether we have won or lost, but they may not tell us much about why. For that we need to have the knowledge-bearing KPIs, showing waste errors and other opportunities for improvement.
These have to be of such a nature that they prompt suggestions and actions.
But these are going to be problems
The vast majority of larger organization have problems implementing strategy. The main problems for the small and medium sized business are more basic than that.
- Getting sustained growth
- Establishing profitability
- Getting control in the hands of the management
This article is about problems implementing KPIs, scorecards, dashboards etc.
You should set your targets for the implementation of KPIs high, requiring automatic real-time KPIs able to provide the greatest possible degree of sub-analysis ‘drill-down’ instantly with a click of the mouse. You should obviously make the production of ongoing information slick, efficient and automatic as much possible so as not to make the maintenance process too resource expensive to support on an ongoing basis. There is always going to be an up-front implementation workload, but with daily KPIs there will be a serious pay off.
Many of the problems shown below will have killed the process and robbed the organisation of the overwhelming benefits which could have been won.
- Management is focused too much on operations, doing the job and improving by anecdotes instead of having a formal process to measure, review and innovate
- Statistics which are essential do exist but are hidden in the clutter of those that are not essential
- Ad hoc investigations taking up management time when things don’t look right,
- IT is an issue. They think software will cost too much to set up and will be an upheaval. In fact it can be quick and easy
- Primary recording is an issue. They can’t get the base data to input because they cannot persuade people to record accurately
- There is still a paperwork culture in some businesseswhich will make this a very laborious process
- There is no rhythm in the culture i.e. meetings are irregular or even non-existent
- They do not understand how overwhelmingly beneficial KPIs are
- High level KPIs are used to manage the front line, and they do not work ,they produce frustration and anger because they are not constructive and knowledge-giving
- Standards for the production of KPIs are set too low, with KPIs coming out at monthly intervals using too much resource to use them and not leading to actions
- No Process for review and actions no Plan Do Check Act cycle
- No £££ evaluation of the annual effect of performance factors.
- No real commitment from CEO
Most problems can be said to fall into three different categories:-
- Getting the right management behaviour to make use of good KPIs and the commitment from the top
- Deciding what are the right KPIs at the right frequency and in the right degree of detail for the given functions of KPIs (results, knowledge and motivation).
- Specific issues to do with implementation, for example presentation, software, data capture and primary recording etc
I will list problems and suggest solutions for all of these three areas in the next three articles.