How do you get meaningful and effective KPIs? Where does it go wrong? I ran a workshop to help a Public Sector client with their effective KPI development. Their feedback was interesting:
- “Seeing the whole picture enabled us to be more confident when dealing with business units, enhances our business knowledge and helps is pick out anomalies.”
- “We can adopt these principles of objective setting to see KPI measures in a new light.”
- “We realised how important it was to have a clear line of sight from the strategy to the KPIs, Phil’s approach gives a better understanding of the steps involved at all levels of the business.”
Now these were not inexperienced people. They were experienced, intelligent, finance and planning professionals. They were using, what they considered to be a systematic planning and performance management approach shared with many government departments. In part it was borrowed from Unipart’s lean methodology (Hosin Kanri) and part from Norton & Kaplan’s balanced scorecard. Like many in their position they were under time and resource pressures. They also wanted to have more meaningful KPIs and be better able to engage and challenge the business units they supported.
Their confusion was caused by KPIs that were not meaningful.
However after a short look at there approach it was clear to me that, despite the pedigree of the approach, there were some problems and anomalies that made planning more difficult that necessary and created some less
Meaningful KPIs and targets are easier to hit.
than meaningful KPIs.
Unfortunately, like many organisations their methodology and approach had a tendency to leap straight from a) statements of strategy and very high level organisational objectives right across to b) KPIs and measures at a more local level. Even when they tried to use local objectives it did not work well. Sometimes this can be successful, but often it is not. It often creates local KPIs that are quite a reach from the intention of the strategic objectives. In the worst cases they cause unintended consequences and exactly the wrong behaviour. This problem is not restricted to public sector clients: I have seen it in many commercial organisations as well.
In contrast when you systematically cascade objectives through the organisation you carry the message of the strategy better. So people get to think through what it means for them and they are better engaged.
More systematic and effective KPI development
That is why you need a systematic method for effective KPI development that is designed to support the effective communication and use of the KPIs. Many KPI development approaches don’t think this way. Focusing too much on KPI selection, and not use and the behaviours they will encourage.
When you develop KPIs after developing objectives it gives you a three pronged approach that avoids the chance of dysfunctional behaviour and gaming the KPIs. When you communicate what you want to achieve, the behaviours that are expected and how you think it is best measured, you give people a much more complete picture. There is less chance of a mis-understanding and the strategy will be more meaningful. This was the problem this team faced – there was too large a gap between strategic objectives and local implementation and meaning.
Effective KPI development provides clear line of sight
Just communicating KPIs often means people lose sight of the overall picture. Every unit operates in a wider business context collaborating with others. Narrow KPIs often put blinkers on people so you undermine the wider collaboration you intended to create. Putting KPIs inside a business model, one that shows how the strategy is to be implemented, as we do, means that people see their role in a much wider context. The blinkers come off and, as one workshop attendee put it, “we have clear line of sight”.
Sometimes a short-cut means a longer journey in the end.
If you want to ensure your KPIs are meaningful, effective, and work as you intended, then give us a call. We can examine how you are developing, communicating and using your KPIs to help you ensure they are supporting your strategy just as you intended. Most importantly are they encouraging your people to do the right things in the right way? Call us.
