If you are designing a scorecard or a performance dashboard you will, no doubt, be tempted to look at what other organisations measure. If you look around the internet there are lots of lists of KPI for all sorts of situations, for different industries, for different functions, for different sizes of company. You can find a list of KPIs for just about anything.
I’d never ever recommend anyone to choose their business or team KPI’s from a list like this.
1) Your business is unique, you have your own set of goals.
KPIs are all about achieving goals. Before you start defining your KPIs you need to have a very clear idea of what you want your business to achieve, and an understanding of what you need to do to get there from the place you are now. The guy who wrote the list of KPIs has no idea what your goals are.
This journey is unique to you, it wont be the same as your closest competitor, so the KPI you use to measure your progress wont be the same. There’s some help on how to set business goals here.
2) Your company values need to be reflected in what you measure
What’s important in your business isn’t necessarily whats important in your competitor’s. Different businesses have different attitudes to environmental ethics, the way they treat their people, what level of profitability is acceptable, and so on. Companies that succeed are often the ones that dare to be different, and put their values right at the heart of everything they do. The focus of measurement needs to reflect the values of your business, not whats expected as at the norm in your industry.
3) Measures need to be understood and accepted by employees
The whole business needs to pull in the same direction to deliver its business goals. Business objectives need to be cascaded into team objectives and personal objectives. The easiest way to create buy in from business managers and employees is to involve them in the goal setting and measure design process. Just grabbing a list of KPI removes a huge opportunity to bring the business team on the journey and gain their active involvement in achieving the new KPIs.
4) There will be specific things you know need to be done better
There will be some very specific things you know you need to change in your business. These need to be on the dashboard, irrespective of what the KPI list from the internet is telling you. The scorecard must be relevant to your situation, and remember………What gets measured gets done.
5) Many KPI focus on results not causes
Lots of the published lists of KPI are dominated by historical indicators, using just historic information is a lot like driving a car just using the rear view mirror. You need to see where you are going, where you have been is not always a good indicator of this. Think of each goal you want to achieve, then think about the factors that will achieve it, and then the factors that will, in turn, achieve those. Go at least two levels back from your goals and explore cause and effect. Set your measurement around the things that will cause you to achieve the goals, or that you want to know are going wrong before they really impact on the business. For more information on what makes a good KPI, check this link.
6) Ignore any advice to link KPI to pay
There’s a lot of advice out there that suggests you link employee pay to achieving certain KPI. Never, never do this. Your KPI should focus attention on potential problems and issues in the business, help you act as a team to put things right. Occasionally indicators need to become amber or red, if they are always green then they aren’t doing their job. Once reward is linked to a KPI people will focus on ensuring it is always green, whether it should be or not. People will find ways of beating the system, and all you get is a Key Political Indicator, not a Key Performance Indicator.
This isn’t just my view, it’s also the opinion of David Parmenter, the King of KPIs” and is discussed at length in his book Key Performance Indicators (KPI): Developing, Implementing, and Using Winning KPIs.
Linking pay to a performance indicator from a list you haven’t thought through properly can lead to the greatest KPI disaster. A KPI that wasn’t right for your business generating all sorts of wrong employee behaviour.
So in summary:
- Your journey is unique to you, it wont be the same as your closest competitor, so the KPI you use to measure your progress wont be the same
- The focus of measurement needs to reflect the values of your business, not whats expected as at the norm in your industry.
- Involve the business team in selecting KPI, it’s the best way to get their buy in.
- Make sure you measure the things you know you need to focus on doing better
- Measure causes not results. history is interesting but you can’t change it.
- Don’t encourage the wrong behaviour by linking pay to KPIs
Before you go into a KPI exercise you must be absolutely clear on what your goals are and what you need to do to get there. Don’t start with a KPI list from the internet start with the question, what am I trying to achieve, what do I need to do to achieve it?