20 Questions and Answers about KPIs
By David Parmenter
I have organised these answers into three sections
What is a KPI, a CSF and BSC?
Key Performance Indicators (KPIs) are those indicators that focus on the aspects of organisational performance that are the most critical for the current and future success of the organisation. KPIs have seven characteristics, which are explained in Chapter 1 KPI-book 4th edition “The Great Misunderstanding”. It is a myth to consider all performance measures to be KPIs. There are in fact four types of performance measures. There will only be about 8 – 10 KPIs in an organisation. For more information, also read Chapter 2 KPI book 4th edition ” The myths of performance measurement”.
CSF and BSC are short for Critical Success Factors and Balanced Scorecards.
Who should be in the KPI project team? and Who should run the KPI project?
The KPI team should be a mix of individuals who have a broad skill base. I refer you to the team checklist I have in chapter 6 in Key Performance Indicators, 4th edition. It is desirable to have someone from HR, Finance, Operations, other parties should be IT, Planning, Operations Research. All of these individuals must be able to facilitate a one day workshop and be above average communicators. This project team is no place for a person who hides behind emails.
Can I pull my KPIs out of a KPI database?
The answer to this is certainly no. In all failed KPI implementations, one common feature will be the random sourcing of measures, or called KPIs. As already explained, there are four types of measures and KPIs are in the minority, with no more than 10 in an organisation. Visit 10/80/10.
The source of all KPIs should be and always will be the organisation’s critical success factors. If you want to get your staff to work each day on Steven Covey’s “rocks”, you had better find out what are your organisations CSFs. The new good news is the oracles in your business the shortlist the main suspects in a two day workshop, and after three or four weeks of gestation, you will be able to announce to all staff what they should be focusing on.
Once the critical success factors are established, it will very quickly highlight the appropriate measures to use. If you use David Parmenter’s sphere of influence mapping process.
Do you believe that certain corporate cultures are more metric driven than others? How do you change an organization that doesn’t care about metrics?
The key is the chief executive. If they are not interested, then there is little hope in success. It is my belief that for many chief executives, it is just a matter of selling KPIs to them by their emotional drivers to switch them on. If you have done this properly, most CEOs will be motivated by the project. To fully understand this, listen to my webcasts that can be sourced from www.davidparmenter.com
Are there large companies who have converted successfully to your method from an already implemented Harvard BSC?
My work has been out there for over 20 years. I know organizations are using it from the calls I get. I was asked once to fly to Melbourne to visit a company that was three-quarters of the way in implementing my concepts. I no longer do project consultancy, as it is not my strength. My focus is to sell the vision and offer a practical way forward in which in-house teams can be empowered to operate. My role now is as a mentor and facilitator. I have successfully mentored KPI team leaders on successful projects. I would add that the success has been their doing not mine.
Next Steps on a KPI Project
What is the correct time to implement, ‘Implementing Winning KPIs’?
The best time is when you have a 16-week window. I explain more on why 16 weeks is appropriate in Chapter 3 in Key Performance Indicators, 4th edition.
What do we do with our existing KPIs?
Most of your KPIs just need to be reclassified, some will be PIs, RIs, and some will be KRIs. Read chapter 8-9 in Key Performance Indicators, 4th edition.
What are the top three risk factors that might make a new set of KPIs fail?
Firstly, not having the senior management team switched on in the first place, especially the CEO. Secondly, Inadequate work done on the CSFs. Thirdly an organization that does not finish what it starts, an epidemic that is sweeping commerce today. In fact, a CSF for many organizations, “we finish what we start”. Imagine if that was on the walls of every Project Management team, department, and group.
Do you agree on using the 24/7 KPI’s as alarm triggers?
It is certainly a call to action, so in that sense I agree with you. For the last twenty years, David Parmenter has said KPIs are measured 247 daily, weekly. There isn’t a kpi measure that is a monthly measure, for they are far too important after the horse has bolted.
Can we undertake this task if the CEO insists on delegating their role in the KPI project?
If the second in charge to the CEO has the ear and support in all cases, it is possible. However, we need to change the job description of the CEO to ensure that all future CEOs have a working background with Balanced Scorecards.
In the case of a long term project, will the KPIs be put on the tasks? activities? deliverables or the finishing of the project?
KPIs are not project based, they are based on the organisation. Certainly, one KPI will be late projects, and this will be reviewed weekly. The CSF would be “we finish what we start”. Projects will have measures in themselves, but they will not be KPIs, but PIs and RIs as they are not fundamental to the organisations, and will not meet the seven KPI characteristics.
What technique do you recommend if it is highly unlikely or not feasible to get senior management together for the critical success factors workshop?
Don’t start the project. You need to do more selling. When they understand what you are talking about, they will want to be there.
Should the entire organization be focused ONLY on the KPIs of the total organisation?
In an organization that is in one main sector, the KPIs will be for the whole organization. E.g., the late plane KPI is one a number of teams will be monitoring. However, it is unlikely to be on the scorecard for finance, HR and IT because they will not be responsible for late planes.
How relevant is the size of the organisation for the implementation of a project of this nature – it may be much easier to implement it in a company of 500 staff but what about a company which encompasses 30,000 staff?
Most certainly a 30,000 staff member organisation is an enormous project. However, through piloting the process, in two or three of your faster and agile businesses, you will have created a no win situation for the business units who do not want to adopt this methodology. In essence, a 30,000 employee organisation will be made of a number of Balanced Scorecard initiatives, each one to be done in the 16 weeks.
The rollout for a KPI project for different sized organisations: <100, 100-250, 250-500, 500-3000, 3000+ are set out in exhibit 6.3 in Chapter 6 of the Key Performance Indicators, 4th edition.
How does the action plan to implement KPI’s within the organisation change when the push is coming from the CEO level down rather than the other way around?
The push has to come from the CEO. What I don’t think works is when you establish the CSFs and then the performance measures in head office, and then start using them without staff understanding what’s going on. We have been doing this way since Charles Dickens times and it has seldom worked!
Technical Issues You May Face
Why do you focus measurement on KEY CUSTOMERS’ SATISFACTION and ignore the damage a dissatisfied insignificant customer can do to your reputation by telling others about the bad experience?
Do we want all customers to be satisfied equally? I would suggest to you the answer is ‘no’. Why? Because we have a core group of customers that are critical to our business and we want our staff to be focused on them. If we have somebody in dispatch we want them to single out all the priority or key customers’ dispatches and make sure these are dispatched first and that these are double checked, maybe with some special quality assurance procedures so that nothing will go wrong with their delivery.
What we want to do is find out what makes our key customers happy. It might be something simple like, key customers like to have delivery ‘in-full on time’. Meaning that they want what they ordered, to the quality they expect, at the agreed time. Once we do that, they are happy. If this is the case we start measuring that as it will be their major satisfaction driver.
If you treat all customers as equal, you certainly miss treating those important customers in a way in which they expect to be treated. Harry Mills in a brilliant book, called “Rain Maker”, talks about DROP, breaking your clients down into diamonds ( the top 5-15 customers), rubies, opals, and pearls (those you can live without). Treating all customers the same will lead to major mistakes.
Some or all of the ‘pearls’ will not be profitable customers, they want uneconomic quantities, products that maybe are obsolete, they may quibble about payment, and are never happy. Doing a satisfaction survey of this group is not only expensive but the results will skew satisfaction results and may lead to inappropriate action. These customers may never be satisfied. Do your self a favour and pass them on to your competition. They deserve each other.
Imagine a dispatch supervisor with 100 deliveries, 98 easy ones and 2 large ones to key customers. If the supervisor is measured on all dispatches they will do the 98 easy ones first and may miss the deadline of the two important ones. If, on the other hand we measure only the dispatches to key customers the dispatch team will do those deliveries before the morning beak and juggles the rest as best they can. If we communicated the ‘DROP’ to the dispatch team they could then priories the deliveries. Missing the deadlines for ‘Pearl’ customers is not a problem. In fact, we should have given a large lead time for delivery to these customers as we have other higher priority customers.
Can you give some specific KPIs for head office functions such as finance, sales, HR, call centre etc?
There will be few KPIs in head office operations. In other words, it is sad to say that many head office function activities are not critical to day-to-day operations, other than of course, our operational systems . If we only have 10 KPIs in an organization, the remainder are RIs and PIs, which the accounting team will have a number of. In my ‘The Financial Controllers and CFO’s Toolkit’ book, there is a scorecard for the finance team.
Where should we trap KPIs –is it in an Enterprise Data Warehouse or in a dedicated system?
An operational system, with wide access, which links to data already trapped and which has a linkage to the intranet is critical for the monitoring of daily/weekly KPIs. Airlines will know up to the minute, which planes are late and by how long. And this data will be available to all staff including key suppliers so that late planes can be brought back on time.
Don’t you believe the requirements to make KPI’s a reality through your steps is unrealistic? CEO committed… Business Owners taking two days to define KPI’s… Time available for marketing your project… long timeframe.
Certainly, over the last 20 years, well over 50% of performance measurement initiatives have failed miserably. I’ve heard it said that over 75% of Balanced Scorecards aren’t working. Millions upon millions of dollars are being invested in measuring and reporting performance which doesn’t change one heartbeat of the organisation. This has to stop. Organisations will be better off without it, than with this comfort layer that does nothing.
I totally agree with the sentiment in your argument. Many organisations through substandard Senior Management who are only experts in firefighting, haven’t a hope of putting in such a project. To those middle managers who can see the benefits of my work, I would suggest to you, to wait till the SMT changes, or move to the many organisations that do exist where the Senior management are well read and informed.
I spoke to 450 Chief Executives in Kuala Lumpur. Each of these executives had signed up for one day a month mentoring. These CEOs were certainly much better informed and motivated than CEOs I meet who barely have one day of training a year. One these training days they are playing around with their PDA during the training day, fight fires. It occurs to me that many members of the SMT have believed that learning has stopped once they get on the SMT. They often believe there is no need to have anything more than attend a breakfast session update from a business thought leader.
Would you agree that KPIs are tactical in nature and performance indicators would be strategic in nature?
If by tactical, you mean able to be pinned down by an individual or team, monitored daily, etc, then yes I do agree with you. Performance indicators and result indicators can be monitored daily, and therefore one could include these as tactical such as yesterday’s sales, and weekly sales to key customers.
How can I make my data work to move my organization forward?
Look more at the measures in the future. Stop measuring by looking in the past. KPIs that are measured into the future truly change peoples behaviour, listen to the examples in my webcasts that can be sourced from www.davidparmenter.com. Examples of future measures include: the CEO monitoring weekly the next planned interfaces, next promotions, next social gatherings with key diamond customers (top 5 or 15). To fully understand this, listen to my webcasts that can be sourced from www.davidparmenter.com