We’ve received a lot of interest in our new KPI Certification Program. In fact, one woman said she couldn’t wait until the first scheduled program offering. She also wanted to know if we had a handy list of the most important principles – she wanted a cheat sheet! So in the interest in tiding her (and others) over, below I have compiled a few of the most important KPI tips and tricks. There are many more of course, so if you think I’ve missed anything, please add them in the comments section below.
Strategy comes first!
A training student told me his organization is struggling to implement measures for brand equity, customer engagement, and a few others because they believed the measures didn’t really apply to their company. I asked him why they were implementing those measures if they didn’t seem to apply, and he said they had found them in a book. They had no strategy or goals of any sort, and yet somehow thought they had a measurement problem.
KPIs found in a book of measures don’t necessarily mean anything in relation to your strategy. If you don’t have a strategy and/or can’t articulate what you are trying to accomplish, it is too early for KPIs.
KPI Development is a Process
I am embarrassed to admit that the first time I facilitated the development of performance measures with a client, I stood in front of a blank flip chart and asked them to brainstorm potential measures. It was my first consulting engagement as a junior associate and the project lead had stepped out to take an emergency phone call. Even though I had a basic understanding of what good KPIs looked like, I couldn’t help the client come up with anything other than project milestones (“complete the web redesign by August”), improvement initiatives (“we need to redesign the CRM Process”), or vague ideals (“customer loyalty”). What I didn’t understand at the time is that you need to use a deliberate process for developing KPIs, based on the intended results within your strategy. And like any other process, KPI development requires continuous improvement discipline and focus to get better.
Articulate Intended Results Using Concrete, Sensory-Specific Language
Strategy teams have a habit of writing strategy in vague, abstract ideals. As you pivot from strategy to measurement, it is critical that you articulate what this strategy actually looks like using concrete language that you could see, hear, taste, touch or smell. A vaguely written strategic objective like Improve the Customer Experience might get translated into checkout is fast, or facilities are safe and clean. Improve Association Member Engagement might get translated into a result of members volunteer for extracurricular activities. I’ve seen strategy teams shift from 100% agreement on vague ideals to diametric opposition on potential intended results, indicating that their consensus around strategy was actually an illusion. Use simple language a fifth-grader could understand to describe the result you are seeking. If you spend your time honing this intended result, the most useful performance measures almost jumps out at you.
It’s not about the Dashboard!
Dashboard software is great when it is used to support a well-designed strategic management system. Unfortunately, many people are more interested in buying a flashy new tool than they are in understanding how they are performing (a topic I’ve talked about before). KPIs are not about a dashboard. KPIs are about articulating what you are trying to accomplish and then monitoring your progress towards those goals. A dashboard is the supporting tool and too much emphasis on technology misses and often distracts us from the point.
It’s not about the KPIs!
Speaking of people missing the point, we have many clients who think this process begins and ends with the KPIs themselves. Unfortunately, some of these folks are simply trying to meet a reporting requirement or prepare for a single important meeting. This type of approach completely misses the power of KPI development, which is that KPIs provide evidence to inform strategic decisions and enable continuous improvement.
For more about how to improve KPI development in your organization, see our KPI Professional Certification Program or The Institute Way: Simplify Strategic Planning and Management with the Balanced Scorecard.
There has been a lot of interest in my recent blog post: “Balanced Scorecard Gone Bad: What’s that Funky Smell?” Several people have posted comments and questions in various forums, but one in particular deserves special attention.
Dear Abby-Gail: I believe a key point in your message is that a strategy is never static due to external changes (e.g., competitor moves, new technologies), so it will require continuous adjusting. But this raises a different question. Since as strategic objectives change or the emphasis of what to accomplish within strategic objectives change, this means some KPIs may be dropped and others added (or their weightings may need to be tweaked). As a result, how much change in KPIs can an organization tolerate?
Dear Gary: This is an excellent question. When strategy changes, then KPIs will have to change. Organizational tolerance to change is affected by several things.
(1) Is the scorecard system engrained in the organizational culture such that management trusts the system and uses it to make decisions? If so, they will have relatively high tolerance for change in the KPIs because they understand that the change is necessary if they are to continue to rely upon the system to make strategically relevant decisions.
(2) Given that you know you need to adjust the KPI, how quickly can you achieve 7 data points on the new or adjusted KPI? In other words, is there baseline information available that will help you quickly establish an XmR chart? If not, can you achieve frequent enough reporting points to have useful trend analysis within 6 months? If you were using an excellent KPI in the past and then switch to one in which it will be a year (or more) before you have enough data for management to have the 7 data points needed to make statistically sound decisions, this will cause frustration and lower the tolerance for the necessary change.
(3) Can your software system handle these changes without losing your historical performance on the objective (assuming the objective does not change)? Knowing that you won’t be throwing away historical information increases tolerance for change.
(4) What about rewards tied to KPIs? How do your Human Resources processes link individual or group performance and incentives to KPI performance? What will be the result of changing a KPI right now? If it can’t be changed due to a covenant with employees, can it be removed from the calculation so that you don’t keep working towards an “expired strategy”?
I invite feedback from others. What else has impacted your organization’s tolerance for needed change in its KPIs? And does anyone want to share their tips for overcoming resistance to this sort of change?
For more challenges and solutions, we invite you to explore The Institute Way: Simply Strategic Planning & Management with the Balanced Scorecard.
In my work life, I’ve discovered that dread of math, especially statistics, is widespread in the business community. So let’s tackle something fun: the concept of correlation.
When developing performance measures in business, we sometimes face a stumbling block in that the thing we desire most to measure is, unfortunately, impossible to measure directly. So, we have to look for a “proxy” measure that is correlated.
Let me illustrate with an example from daily life. Let’s say I want to know if I am maintaining my ideal weight versus gaining weight. It’s easy to measure that directly – hop on the bathroom scale. But, unfortunately, I can’t. I travel constantly so I do not have a bathroom scale with me most days.
So I have a correlate that I measure. I always carry the same pair of skinny jeans with me. As long as the jeans will button, I am fairly certain of what the bathroom scale might say, if I had one. The fit of my jeans is correlated to my weight. Now, a statistician will remind us that “correlation does not equal causation.” This simply means is that I need to consider that other things may be causing my jeans not to fit – for example, maybe they shrunk in the wash. But understanding this, I am reasonably certain that they are a good proxy measure while on the road.
See how easy it was to master two important concepts for measuring performance in business – Direct Measure and Correlated Measure? It’s all about the attitude!!