Key Performance Indicators (KPI)
KPIs create a powerful way to improve performance over time and trigger the need for course correction when performance begins to slip from the desired state.
Are you struggling to know the degree to which work is being done to meet internal and external customer expectations?
Are you clear as to the degree to which work is more painful, and therefore more costly to the organization than it needs to be?
Without KPIs to guide work teams, departments, business units, and entire companies it’s difficult to have answers to the above questions at your fingertips.
Measuring progress towards a defined goal at regular intervals provides feedback to work teams about how they are doing in relation to a defined goal.
Selecting KPIs to measure progress towards an improvement target depends on the type of work and the gaps a work team or organization seeks to close. It also depends on organizational priorities, customer needs and expectations, compliance and regulatory considerations, future business needs and market shifts, and overall maturity of the organization with measurement and leading improvement.
How We Can Help
Depending on the organization's need, we can help:
In all cases, it helps to start by asking two key questions:
What problem(s) do we need to solve?
What type of measurement will help us see whether we are making progress or not towards the target?
All teams within an organization should measure performance from two perspectives:
What’s critical to the customer: Get to know your customers very well by talking with them and learning what they see as areas for improvement. Critical-to-customer KPIs could include gaps that involve product or service quality, speed of delivery, hassle factor in purchasing the product or service, the price, missing features, and so on.
What’s critical to the business: It’s best if critical-to-business KPIs are heavily weighted towards operational performance and not solely financial. If you improve performance operationally, financial performance often follows. Operational performance includes the people component as well.
We facilitate leadership and frontline workshops by coaching and engaging the team in critical thinking on critical success factors noted below, which enables them to identify and implement the correct KPIs for their purpose to improve work efficiency and business performance.
A no-blame, non-judgmental mindset is necessary to create an environment where people are open to admitting that they have performance gaps. If problems are viewed as fundamentally “bad”, people often hide them or resist doing the work to improve performance. Building an improvement culture with strong leadership support will create an energetic environment that supports KPI work. Without this degree of energy, KPIs may be viewed with dread.
Team Ownership, Control & Buy-In
Instead of giving each work team their KPIs, have them define their own KPIs with “guidance” from leadership. Pre-determining KPIs for others is disrespectful as it robs people of the opportunity to learn how to choose KPIs and set appropriate targets, plus it makes it less likely that they will truly own their KPIs. Workforce involvement engages people and provides them a degree of control (a human need) that makes people become more vested in the outcomes to improve the work and resulting KPI.
Focused KPIs at Work Team Level
While corporate-level KPIs reflect a balanced scorecard across operational, customer, employee, safety, and financial that are critical to achieving strategic goals; a work team area mostly represents many improvements that can be made. At any point in time, it's best for work teams to select 2 – 5 KPIs to focus on improving over the next 3 – 12 months.
Within Team’s Control
It’s unfair and unwise to define KPIs with targets that are impossible for a work team to affect. For e.g., a front-line team shouldn’t be given a KPI that centers on financial performance, unless they are the sales team or directly involved in collections. It's important that the work team has enough authority to influence the outcomes of the improvement activities that help meet the target.
Drive Desired Behaviors
Be careful what you measure. KPI's should drive the right behaviors and not incentivize people to operate in a way that’s counter-productive to organizational values and priorities. As you select KPIs, anticipate how people will respond, and think holistically. Defining KPIs requires thought; don’t rush the process.
Present a Challenge
KPI targets should present a challenge to achieve, but not impossible to achieve within the defined timeframe.
Have a Timeline
Incorporating completion deadlines for KPIs affects how aggressively their targets are set.
Tied to Corporate Scorecard
When possible, it's critical that the goals of all work areas tie into the organization’s goals and priorities. However, not all work area level KPIs have a direct tie to the high-level goals, hence avoid spending too much time force-fitting a significant work area improvement need into a high-level organization goal.
Balanced Scorecard at Corporate Level
Keeping in mind Quality, Cost, Delivery, Safety, and Morale organizations should view their performance from four perspectives Financial, Customer, Internal Process, and Learning & Growth. In general, KPIs should focus more heavily on operational vs. financial performance, as financial performance is mostly a lagging indicator and a direct result of high-performing operations.
Visual & Visible
It does little good to roll out KPIs and then hide the results from those who care or need to know. Visually displaying KPIs in common areas makes it easy to know the KPI's current performance vs. its target. Line or bar charts are more effective than tables filled with numbers.
Awareness Can Shift Behavior
When employees learn what matters to leaders, the leadership focus itself can cause employees to change their behavior, which improves outcomes. For instance, when a KPI is selected and before any real problem-solving begins, the product quality may suddenly improve, or people start following the process standards more closely.
Getting Started Checklist
Each client's need and situation varies. In most cases, below is a good checklist to follow if you are getting started.
Take an honest and balanced view of your work team or department’s performance. What’s working well vs. not.
List all potential KPIs you could use to drive improvement
Narrow the list to 2 – 5 KPIs to focus on for a 3 – 12 months period of time, based on the criteria below:
Clear Purpose. If people don’t understand why it matters, it will be difficult to generate enthusiasm for improvement.
The data should be relatively easy to collect.
The team has the authority to improve the work.
Establish The Baseline from which you’ll measure improvement. Select current state data, which is clean and represents reality.
Set an improvement target, which should be challenging but not impossible to achieve within the defined timeframe.
Define measurement frequency
Visually display KPIs.