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Choosing KPIs the right way

Small Large Comparison Fish Too Small Goldfish Fishbowl. Envy can drive poor KPI choices

I used to be a bit of KPI purist. I would argue that you must build your KPI selection from ‘scratch’ as your KPIs must reflect your strategic objectives and you should never ‘borrow’ another organisation’s strategic objectives. Having spent a lot of time actually creating KPIs for organisations I have softened a little on this. For many organisations their basic process, regulatory and legal requirements are pretty similar to that of other organisations (in the same country at least), so there is good reason to look at what others are doing for their process and regulatory measures. It can help us spot things that we have missed, speed up the selection process and make our lives a little easier. There’s a time and place to use both the ‘built from scratch’ and ‘steal ideas from others’ approaches.

When to start from scratch, and when not to…

To work out when to start from scratch, when to look for existing measures (and when you really should just ignore certain measures), there’s a simple way we can categorise KPIs into six ‘families’. Each family has different characteristics and require different approaches. Here’s my guide to each type and the best approach….

Ballerina posing on the intersection of railway rails. Choosing KPIs to keep your organisation on the rails is boring but critical

Keeping your organisation on the rails

Approach 1) Keeping your organisation ‘on the rails’ – Process Measures

These are your bread-and-butter KPIs. They are basic, commonly used and important. Many of these will be known and understood already, but some critical ones may be missing. One of the best ways to cover these in a structured and thorough way is a process walk-through. To do this you need a basic process map, some rough idea on the types of things you are interested in (e.g. waste, yield, efficiency, lead time, labour cost and so on) and a few people actually involved in the process in the workshop. You will come up with too many potential measures, so you can then use the KPI Priority Matrix to narrow the selection down to manageable numbers. This is the first of two categories of KPIs where I think it’s acceptable to look at measures that similar businesses are using to double-check you have everything covered.

Summary of Approach 1 -Keeping your organisation ‘on the rails’

    1. Map your process and use the process maps to create ‘Process measures’
    2. Use the KPI Tree approach to longlist and shortlist candidate measures
    3. Review measures in-use in similar to your organisation, as a sanity check and to check for omissions
Sometimes we do not have complete freedom when choosing KPIs

Sometimes we do not have option when choosing KPIs

Approach¬†2) Staying ‘legal and compliant’ – Non-Negotiable Measures

These are the things you have to measure, or you need to keep a close eye on. Common examples might be ‘Reportable health and safety incidents’, ‘Data protection breaches’ or ‘Client money errors’. This is the second category of KPIs where I think it’s acceptable to look at measures that similar organisations are using, to double-check you have everything covered. The legal and regulatory requirements on other businesses in your country and sector are likely to be broadly similar, so it can be useful to take a look at what others are measuring to make sure you have everything covered. DO NOT rely on others having all angles covered with their KPI. You should attempt to identify the main ‘candidate’ topics and KPIs BEFORE you look at other businesses. You should also look at several competitor KPIs, rather than relying on just one, if possible. There is a risk that any measure related to legal or regulatory requirements becomes ‘untouchable’. Just because a measure is of something important, it does not necessarily make that specific measure a requirement or the correct measure, so remember to be as challenging as usual.

Summary of Approach 2) – Staying ‘legal and compliant’:

    1. Understand your legal and regulatory obligations and agree your organisational aspirations and summarise these as strategic objectives
    2. Use the KPI Tree approach to longlist and shortlist candidate measures
    3. Review measures in use in similar business as a sanity check and to check for omissions
Success hitting target as a business assistance concept with the help of a guide as a symbol for goal achievement management and aim to hit the bull's eye as a dart assured to go straight towards the center.

Choosing KPIs to deliver strategic goals can be the most rewarding of all KPI activity

Approach 3) Improving your Business and Achieving your Goals – Strategic driver KPIs

Choosing KPIs which move you towards your organisational objectives can make a massive difference. They are the ones that elevate an organisation from ‘getting by’ to really moving towards real success. Very often it’s tough to create and define these measures, but there are tools and methods to help us do this. The KPI Tree (here’s why you should use a KPI Tree) is my preferred tool. A KPI Tree enables you to directly link your measures to clearly defined strategic objectives and also model how they interact – to make sure you don’t get counter-productive outcomes. .

Summary of Approach 3) –¬†Improving your Business and Achieving your Goals

    1. Understand your organisations strategy and engage the owners of the strategy. Summarise as 2-7 strategic objectives
    2. Use the KPI Tree approach to longlist and shortlist candidate measures
Tray of eggs with one broken egg visible

A set of brown eggs in a plastic tray

Approach 4) Problem-inspired KPIs

When things go wrong managers and execs start to show an interest. It’s very common to see a whole heap of measures being reported that were put into place to address, and track the symptoms of, specific problems. Choosing KPIs tends to be easy as they are forged in the ‘white heat of panic’ and have full management and resource focus. Sometimes they are helpful and meaningful, often they are completely ‘over the top’ and build a culture of ‘over-checking’ rather than resolving the underlying issues.

Summary of Approach 4) – Problem-inspired KPIs

  1. Make sure that you are addressing and measuring drivers related to the root-cause of any problem.
  2. Put a review date in the diary, when you think the problem should be under control and the crisis has passed and ask…
  • Are we still using this measure?
  • Is it still appropriate to monitor this problem?
  • And, if it is still an issue ‘Is this still the best measure of the problem?
Small Large Comparison Fish Too Small Goldfish Fishbowl. Choosing KPIs because everyone else has them can lead to poor outcomes

Envy can drive poor KPI choices

Approach 5) Keeping up with the Jones’ KPIs

Some measures become ‘accepted standards’ even when they are nonsense. Two examples I come across regularly are the Bradford Factor and Grade of Service. Even though they are flawed in multiple ways, they become something that everyone feels they have to report on. It takes a bit of courage to avoid choosing KPIs that everyone else uses, but it does come with the added benefit that you save your team some pointless admin.

Summary of Approach 5) – Keeping up with the Jones’ KPIs

    1. Use the KPI Tree approach to longlist and shortlist candidate measures
    2. Be brave and don’t use a measure just because your rivals do
Unpleasant looking TV dinner. Choosing KPIs because they are easy can make for unpaletable results

Just because it’s easy doesn’t mean its good when it comes to choosing KPIs, or food

Approach 6) “Hey it’s easy!” KPIs

This is a category that gets worse every year. Why? Technology. New technology generates every increasing amounts of information, makes it easier and cheaper to store and quicker to present in an attractive way. One major telecoms organisation I worked with had 108 KPIs for their call centres. Why so many? Well their ‘turrets’, the kit they use to manage their phones and calls, were set up to measure everything and anything. Rather than challenge which measures were valuable, the teams simple reported everything.

Summary of Approach 6) – “Hey it’s easy!” KPIs

    1. Use the KPI Tree approach to longlist and shortlist candidate measures
    2. If in doubt, leave it out

 

Choosing KPIs the Right Way. Summary…

It’s always important to remember that KPIs serve your organisational objectives. It’s fine to look for inspiration from others when

  1. They have similar processes
  2. They have similar environmental factors (law, geography etc)
  3. They are passably good at what they do (do you really want to copy the homework of someone who always does badly?)

…but for the really important measures intended to deliver real organisational improvement it is essential that you use a structured method to develop specific KPIs that align totally with your business strategy. KPI Trees are the tried-and-tested way to do this. Check out KPI Checklists on Amazon (ad below) for full step-by-step instructions on how to do this.

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