Wednesday, April 23, 2014

What are the Goals to Choose the Right KPIs

Selecting the right measure and measuring it right are both art and science. And KPIs influence management behavior as well as business culture.

Choosing the right KPIs is crucial. The challenge is that people have their own take on KPIs. KPIs must be aligned with the corporate goals and objectives - but should also be directly relevant to the activities that businesses are attempting to manage (process execution). If you only select KPIs based on outcomes without managing the processes that contribute to 'good and bad performance', you will continue to be out of control. However, it is equally dangerous when you focus on 'process execution' without understanding if the process is delivering the desired 'outcomes'. Perhaps the greatest challenges are not about 'data management' - but 'relationship management' within the organizations.

What are the business goals for KPIs?
·        - To provide objective evidence of current performance towards achieving agreed goals.
·       -  To drive positive culture and behaviors
·      -   To empower delegation and decision making, while managers are accountable for the results of their actions (evidence-based decision making)
·         -To build 'management competence' and reinforce positive management behavior 
·         -To facilitate its own validation against measures
·         -To prevent, detect and mitigate gaming of the system for personal gain or political advantage

What are the KPI principles?
- a KPI must measure end-goals (effectiveness) and process execution (efficiency).  
- a KPI must be translatable into other KPIs that can be attributed to departments down in the company hierarchy.
- a KPI must be relevant to the hierarchy of the company.  
- a KPI must show what is important to pursue executing the company strategy 
- the group of KPIs must prevent making it a KPI game 
- a KPI must act as an early warning system that the strategy is not on track 
- a KPI must empower people/teams to do "the right thing" 

There must be an understanding of both outputs /process and outcomes. The problem with many frequently used KPIs is that they are not related to the process people are actually attempting to manage - and the result is that people become de-motivated and frustrated by 'arbitrary targets'. If you want "early warning that the strategy is not working" - you must recognize and monitor the potential causes of failure - which may include 'process execution' (controllable) and 'environmental factors' beyond your direct control.

Drive the positive culture and behaviors. It is clear that people need measures that enable them to make better - evidence-based decisions - and the hierarchy of KPIs should reflect the processes individuals are trying to control. When senior managers routinely demand 'operational data' and start to micromanage the organization, it becomes counter- productive - because people spend their time trying to second guess what ''they' want' rather than understanding the causes of variation and driving sustainable business improvement. 

The struggle for KPIs is that they sometimes need a number of measures around the same issue to gain a complete picture, but then there is a danger that the volume of KPIs becomes un-manageable. One way of mitigating against the effects of this could be to use them in a hierarchical fashion, senior managers can drill down when required - but should not destabilize the process by over-correcting (interfering without enough understanding) or crushing the creative thinking of the people they employ.

Selecting the right measure and measuring it right are both art and science. KPIs influence management behavior as well as business culture, and poorly designed or implemented KPI's can be very damaging the "culture of the team" and the quality of business execution.


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