My favourite KPI story is about Lord King who reportedly set about reviving the ailing British Airways (BA) in the 1980s by concentrating on one KPI. Wherever he was in the world he was immediately notified if BA plane was delayed. The senior BA official at the relevant airport could expect personal call from the chairman. BA planes soon built reputation for leaving on time.
Managers frequently bemoan the lack of appropriate KPIs, resolving always to focus on the “weakness” in future.
In an ideal world managers approach the exercise on company-wide basis tying it in with benchmarking, often sufficiently demanding to put people off. I’d like to suggest some ways to identify key performance indicators which will help manage any business.
Acquire the Key Performance Indicators Manual
First buy copy of the Key Performance Indicators Manual published by Pitman Publishing and selling for A$150 plus p&h. It might seem little expensive but this handbook provides well laid out and easy to follow methodology for the implementation and use of KPIs – it even includes slides to present to staff to explain the purpose of the exercise. It comprises three sections – general principles, workbook and facilitator’s resource kit.
Set up KPI team to find the key result areas
Now let’s agree on the difference between key result areas (KRAs) and KPIs. Before I started writing this article I would, mistakenly, use these two very different terms in similar ways. Key results areas are the issues “that determine the organisational health and vitality” in which good performance is necessary. KPIs are the measures by which performance can be tracked within these key result areas.
In the British Airways example the timely departure of an aircraft (a KRA) impacted customer satisfaction, supplier relationships, penalty costs including passenger overnight stays, servicing schedules and so on. The reporting of the actual delay was the KPI.
Finding the KRAs and the appropriate KPIs is much like peeling the layers of an onion to get to the centre. Whilst it is easy to come up with reasonable list of indicators, it is hard to find the KPIs. There might be less than five.
Long-term employees in an organisation – “oracles” – frequently know about measures that are similar to KPIs. Locating the KPIs is an exercise which requires mix of mental horsepower and knowledge of the business. An in-house project team made up of “rising stars” and organisational “oracles” is good combination.
A spin-off benefit for the “rising stars” from participating in such project is greater understanding of the fundamentals of the business and some helpful mentoring from the “oracles”. It also helps to contact organisations which specialise in measuring performance for they are likely to have database of critical success factors used by other organisations.
Systems to trap the data
Not surprisingly, the answer lies with the executive information system (EIS) or the decision support system (DSS) that is still on most organisational ‘waiting lists’. Our studies suggest few enterprises have these systems up and running. Companies may have huge data warehouses packed with data and generating cacophony of ‘number noise’. The data making up the ‘unfound’ KPIs is, however, invariably lying undiscovered in the mass of data, or worse still not even collected.
One manufacturing participant in our studies with an EIS reports that the executives team see the KPIs for the last day’s trading by 9am the following morning. Management are now more focused, have quicker sales meetings, and the monthly reporting process is not as important as the KPIs which are monitored daily. The board papers are less than 30 pages and the board meetings more strategic.
The reality is, the performance of organisations not focused on their KPIs will waiver with the winds of change.
With the growth of intranet sites within organisations data retrieval does not need to wait for an all encompassing EIS. Participants in our studies report that they have been able to link their intranet to in-house databases relatively easily.
Report KPIs frequently (daily/weekly)
If measure is KPI it is very likely that it should be monitored and reported frequently. The monthly cycle is not appropriate. KPI reporting should show management the trends. Graphics going back at least rolling 12 months are now considered better practice.
A daily, or at the worst weekly exercise should not take the accounting function long once the process is embedded.
Develop hierarchy of performance indicators
This involves company-wide initiative rather than think tank approach. methodology is needed such as that outlined in the Key Performance Indicators Manual.
Company-wide initiatives can be costly, and take time to develop but in the end the process is worth it. According to the Manual; “Best practice is concerned with partnership in change, empowerment of employees, integrated performance improvement and the introduction of team-based structures into the workplace. KPIs are part of the best practice tool kit for drawing the elements together.”
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Steps You Can Take
• Acquire the Key Performance Indicators Manual.
• Set up KPI team to find the key result areas.
• Develop simple systems to trap the KPI data.
• Report KPIs more frequently (daily/weekly).
• Assist with the development of hierarchy of performance indicators.
The Hierarchy of Indicators
KPIs (may be as little as 5 in business)
Business unit/support function PIs
Individual PIs (Performance Indicators)
Last Words
• Obtain copy of the Key Performance Indicators Manual.
• Commence your search for your KPIs now. Some “oracles” may well be leaving in the next few months.
• measure cannot be critical if management only need to monitor it monthly. One must “peel more layers off” to get to the core.
• Commence reporting your KPIs to management daily or at worse weekly.
David Parmenter is managing director of waymark solutions ltd which helps organisations measure performance. Email:[email protected], website:www.waymark.co.nz
