From my observations the failure rate for KPI and balance scorecard projects is off the scale. There are a number of contributing factors that have led to this failure rate.
Organizations, in both the private and public sectors, are being run by management who have not yet received any formal education on performance measurement. Unlike accounting, and information systems where rigorous processes have been formulated, discussed and taught, performance measurement has been left as an orphan of business theory and practice. To make matters worse, organisations are being led by poorly trained CEOs.
The reasons for this lack of CEO training stems back to the CEOs’ informative years. In the 90s there was a wholescale divestment in human resources on a grand scale. In the 80’s it was common to see large HR departments with their own training, recruiting and nurturing activities. Nothing regarding people could take place without HR involvement. Their sphere of influence was everywhere.
In order to become a supervisor, you had to attend a week-long course and, further up the tree, more financial investments were taking place. Executive team members were being sent to leading universities around the world to become indoctrinated in modern management thinking.
At General Electric, the management were exposed to the greatest thinkers alive, with Peter Drucker being a regular visitor to Crontonville, their own management training school. Jack Welch’s phenomenal performance at GE can be tied back to the training and mentoring he received. As a senior manager, he was required to deliver training to younger managers. A reverse training programme successfully used by modern thinking companies.
Nowadays, it is hard to find more than two executives in the same senior management team, who have had this level of investment in their training. In fact, is it possible to find two executives on the same team who have a cluster of mentors supporting them? Being in senior management, without mentors behind you, is like going tandem sky diving without the instructor strapped to your back.
One of the biggest casualties of this lack of ongoing education of the senior management team has been the failure of large performance management projects, such as KPI projects, to succeed.
Key Performance Indicators, in many organisations are dysfunctional and thus a broken tool. Measures are often a random collection, prepared with little expertise, thus signifying nothing. KPIs should be measures that link daily activities to the organisation’s critical success factors, thus supporting an alignment of effort within the organisation, in the intended direction. I call this alignment the El Dorado of management.
The horse before the cart
A common feature of the many failed KPI projects I have heard about is that the cart was put in front of the horse. Management were going for a quick fix for the wrong reasons. KPIs were being set up so that management could have a hook to hang the bonus structure on. If you believe you can set a predetermined target, that is meaningful, you are as daft as the investment sector who every year pay millions to hedge fund managers only to find that the risks that were taken to arrive at the year end result unwind to leave the investors with red ink.
Successful KPI implementations had the following characteristics
For the KPI projects that did deliver I noticed the following common characteristics.
- They committed a complete and thorough exercise to ascertain their organizations’ critical success factors (CSFs) and then ensured that all measures used by the organization relate back to the CSFs[i]. It is the CSFs, and the performance measures within them, that link daily activities to the organization’s strategies.
- There was an understanding that meaningful performance measures are found in the operations (Gemba) and not in head office. There was a close linkage between the KPI team and operations as the team members had been sourced from there.
- The CEO was always talking about the latest management book they had read. If Jack Welch found time to read when he was running his large empire, then we all can find the time to read a chapter or two, three times a week.
- They had groomed an in-house expert in performance measurement. These people were quiet achievers, finishers of the highest order, who were well respected within the organization.
- A wide commitment and involvement from the oracles in the business, the wise owls that everybody refers to when they need answers.
- They had a longer-term view on the project and the investment to make the KPI project team full time on the project.
- The KPI projects were run entirely in-house, without the need for consultants roaming around the halls of power, looking for their next assignment.
- An environment where they piloted each performance measure before its wide scale use, thus enhancing its chance of success. Implementing measures without this testing is at best naïve, and at worst, incompetent.
- There was a mass abandonment of existing measures, with the retention of only those that did work
Recommended next steps for KPI team leaders
- Complete my checklist “Are you ready for a KPI project”.
|Is there enough level of commitment?|
|1. Is the CEO prepared to be the champion of the KPI project?||o Yes o No|
|2. If not, have you considered delaying the project until this level of commitment can be achieved?||o Yes o No|
|3. Is this the right time to embark on this major project?||o Yes o No|
|4. Has it been decided what needs to be abandoned to make room for this KPI project?||o Yes o No|
|5. Has the SMT agreed to the provision of the training and education required to empower employees to create their own performance measures and take immediate remedial action when necessary?||o Yes o No|
|6. Is the SMT prepared to resource KPI development through training, provision of facilitators, and time off the job for employees?||o Yes o No|
|7. Are at least half of the KPI team working full time on the project?||o Yes o No|
|8. Are the SMT familiar with the myths of performance measurement?|
|· Myth #1: Most measures lead to better performance||o Yes o No|
|· Myth #2: All measures can work successfully in any organisation, at any time||o Yes o No|
|· Myth # 3: All performance measures are KPIs||o Yes o No|
|· Myth #4: By tying KPIs to pay you will increase performance||o Yes o No|
|· Myth #5: We can set relevant year-end targets||o Yes o No|
|· Myth #6: Devising appropriate performance measures is relatively simple||o Yes o No|
|· Myth #7: KPIs are financial and non-financial indicators||o Yes o No|
|· Myth # 8 You can delegate a performance management project to a consulting firm||o Yes o No|
|9. Are the KPI foundation stones acceptable to the SMT?
· Partnership with the staff, unions, and third parties
· Transfer of power to the front line
· Measure and report only what matters
· Source KPIs from the critical success factors
· Abandon processes that do not deliver
· Appointment of a home-grown chief measurement officer
· Organisation-wide understanding of winning KPI definition
|o Yes o No|
|10.Do the SMT understand that KPIs are too important to be linked to KPIs?||o Yes o No|
|11.Do the SMT understand that the KPI project needs to be managed by in-house resources?||o Yes o No|
|Am I the right person to lead the job?|
|12.Have you worked in the organisation for over three years?||o Yes o No|
|13.Are you well networked with operations and head office personnel?||o Yes o No|
|14.Are you prepared to work full time on this project?||o Yes o No|
|15.Have you had experience with:|
|· Problem-solving?||o Yes o No|
|· Brainstorming?||o Yes o No|
|· Information display and charting?||o Yes o No|
|· Delivering presentations?||o Yes o No|
|· Interviewing?||o Yes o No|
|· Completing large implementation projects?||o Yes o No|
|16.Your skill base:|
|· Are you a self-starter?||o Yes o No|
|· Have you demonstrated innovation in the past?||o Yes o No|
|· Have you advanced communication skills?||o Yes o No|
|· Are you an “active” listener?||o Yes o No|
|· Have you the ability to bring “others on board”?||o Yes o No|
|· Do you have a good track record in finishing projects you start?||o Yes o No|
|· Are you able to maintain a big picture focus while working on a project?||o Yes o No|
|· Are you happy to work with the chosen KPI team members?||o Yes o No|
|· Do you have the flexibility at home to be able to work overtime at critical times?||o Yes o No|
Your score: Every “No” indicates a problem.
- Fully understand what KPIs are, what they are not, the importance of critical success factors and why balanced scorecard projects often fail.
- Understand the foundation stones that need to be in place for a KPI project to function properly.
- You need to sell the need for change to the senior management team, so learn to do this well. Read my chapter on Leading and Selling Change.
- You need to understand more about the DNA of KPIs. Read my chapter on The Great Misunderstanding with regards to KPIs and the myths of performance measurement.
- Plan your approach by reading my books, whitepapers and getting me to deliver an in -house webcast to help train the KPI team for you.
- Start the journey with ascertaining the organisation’s critical success factors. I can support you from afar through GoToMeetings or phone calls.
[i] This process is outlined in: Parmenter, David. “Finding Your Organization’s Critical Success Factors.” White paper, DavidParmenter.com, 2018.