One Key thing to remember about KPIs:
KPIs are only INDICATORS not SOLUTIONS
KPIs are Key Performance Indicators; not the ultimate panacea of business management
I often hear people saying “once we get our data warehouse, and report on KPIs, all will be well”; and I have been hearing this even more regularly of late! Every single time I have a niggling feeling this expectation is unlikely to eventuate.
There is one key thing about KPIs to always remember – they also need action to become useful.
“What you measure you can manage”
For years and years I have been a firm believer in this adage until this week when I realised, in three different circumstances, good measurements do not ALWAYS lead to better management. The tech bubble explosion in the late 1990s; the current GFC – they all had very clear measures and indications that things were “not as they should be”. The other two circumstances were on a more micro level with businesses, who are very good at measuring, but are having some challenges generating improvements.
Last week I wrote a post on 6 Steps to Choosing Effective KPIs. This week I want to cover other vital aspect of using KPIs – they are Indicators not solutions. KPIs are only a tool and without adding labour any tool is useless.
There are three different types of measures:
* Indicators – Information for senior management, executives etc, to assess current performance and understand IF change is needed. These measures INDICATE the need for an operational decision to be made by someone else.
* Drivers – Information about the Sources of work – Drivers are usually not able to be controlled by management because internal decisions can-not influence the demand. These measures are used to assist with planning for future capacity, product mix, and innovation.
* Levers – Information for operational management decisions to make improvements.
This last one, is the only group of measures that deliver the right kind of information for any business to instigate change because measures that are levers enable decision making, and in business it is decisions that are behind change (even thought some changes result from decisions outside of your control).
Think of the Spedometer in every car – just like the one below:
It only tells you how fast you are going, not what to do. – Should you move your foot to speed up or slow down? – How fast is appropriate? (although this one pictured has a helpfully shaded 50-60km section).
Remember KPIs they are only
Indicators not Solutions[/box]
Capturing and reviewing data is not a magic pill for resolving all business woes. It is decision-making that creates change, and there also needs to be guidelines in existence to provide clues as to when change is required and how to assess if the changes made are “good”.
The power of KPIs lies in the actions taken to drive changes when, and where, these indicators show change is needed; without action KPIs are just another set of useless numbers on a page.
Looking at measures that enable you to lead rather than simply react. That said, different types of measures are used and needed by various management groups:
- Top Management: the measures of achievement will be more financially orientated, but should be analysed with key non-financial data as indicators of performance.
- Middle Management: a broader range of measures (both financial and operational) these are indicators of progress towards strategic goals.
- Operational Management: the focus of indicators will be increasingly non-financial, giving direct fast feedback about performance and supporting learning and improvement; these are Levers for decisions and change.
So bearing in mind that KPIs are only indicators, keep it simple, choose 4-6 to keep and eye on, and combine these with a further 6-8 other measures on your monthly report that cover Levers and Drivers.
As always comments are welcome… share your examples of using data to drive good decisions.