Key Performance Indicators (KPIs) are a hallmark of business practice. They should help us manage our business and drive improved performance. But KPIs are tools to achieve our goals, not the goals themselves. Many struggle with how to choose the right ones, and there are some good guidelines out there. It’s just as important to determine what level of detail is appropriate and how to say goodbye.
A KPI has to be meaningful to the person being held accountable. There should be a direct link to the business and strategic plans for our organization. We should always know how our work adds value, and it’s particularly important when determining KPIs. One way to figure that out it to use a KPI tree. Start with the strategic business objectives and work down into the details. The level of KPI we care about should be the same as the level of the business you can impact. It’s demotivating to be held accountable for ones not in our control.
We can’t track everything. KPIs should reflect what is important right now. “Right now” can mean the time horizon that the strategic objective is valid, but KPIs can change as progess towards to the objective is achieved. Consider:
- How we communicate KPIs and their link to performance will make the difference whether we are successful.
- Too many KPIs and we become over-saturated and don’t know what to work towards. Maybe we have too many strategic priorites (which means they are not sufficiently strategic). Maybe we can’t let go of old KPIs because they feel comfortable and successful.
- The effort that goes into to tracking it. Is it worth the effort, or would we be better off using that energy to make progress?
- Who needs to know? (see above for what we can control)
A organization’s KPI is “tons of steel per year.” An Operations shift may have KPIs for safety, quality, etc. Tracking OEE might give us insight into what to work on, a way to focus some effort. But it won’t fundamentally change what our business is about. It’s an enabler and should be treated as such. Maybe that’s why we struggle.
When priorities change, so should KPIs. We can’t change priorities every day, nothing would ever get done. But don’t invent useless or noise-generating KPIs, and don’t cling to ones that are out-of-date.
How do you manage KPIs in your organizaion? Do you struggle with any of the items above? What would you change?