KPI’s – helping or hindering?
Moving on up
Regulated business leaders place great emphasis on outcome delivery incentive KPIs; for a good reason, meeting these targets determines success or failure. The question is, are they the right metrics to manage your business? In our experience, they are generally the most well-known, but should your teams obsess about them?
We don’t think so…
Managed Through The Rear-View Mirror
By definition, regulated outcome delivery metrics are lag performance indicators. They help tell us what happened in the rear-view mirror but not where you’re going. So, just like driving, most of our attention should focus on the road ahead and your lead indicators for improving performance. Understanding the causal relationships between activities that support outcome delivery determines the optimal set of lead indicators to drive performance. The idea is simple, but implementation is complex.
Putting the K back in KPI
All regulated businesses have developed suits of key performance indicators (KPIs). Yet, in our experience, leaders often wrestle with hundreds of metrics each month, making them unable to see ‘the signal in the noise’, resulting in a lack of focus. Almost all metrics serve a purpose, so it’s not as simple as culling dozens of useless reports or setting arbitrary rules for the right number of KPIs. The effort should be directed at identifying and promoting the ‘halo effect metrics’, which give the most instructive indication of future performance.
What we need, not what we have
Even well-established businesses with advanced measurement and reporting systems often have significant KPI gaps. Where it is known that having data would help to manage operations more effectively, but unfortunately, that information isn’t available.
For example, most operational organisations recognise the need for workforce skills metrics. However, the easiest aspect to measure is often binary ‘in/out of certification’. It’s rare to find KPI for what’s really needed, the relative competency levels of our people for the forecasted work demands, because that’s not easy to measure.
To gain deeper insights that will improve long-term performance, it is crucial to address these gaps, but we recognise that this can be time-consuming and expensive. One practical approach is to develop “cardboard engineering” solutions, which are low-cost and quick ways to gather data before investing in long-term solutions. In our experience, KPIs get better the more they are used.
Managers and leaders have lots of competing demands for their attention. They need to manage performance, budget, safety, people and projects. There is a temptation to separate the myriad of performance reports and review meetings; it creates focus, right?
Focusing on a single performance area may seem beneficial, but making decisions in isolation often has unintended consequences. Because we operate complex and interdependent systems, a holistic view where connected KPIs are reviewed together reduces the risk of knee-jerk reactions.
Have your teams dedicated much time to thinking about how to improve their KPIs lately? If not, you may be overlooking improvement opportunities.