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“Today’s managers recognize the impact that measures have on performance. But rarely think of measurement as an essential part of their strategy” - Kaplan and Norton
The last time I wrote about KPI’s I primarily discussed the general categories used for the Rockefeller Habits, Baldrige Award and Kaplan & Norton’s- Balanced Scorecard to create a balanced KPI dashboard. All the approaches are good, but we prefer the six Rockefeller Habits categories at Rhythm Systems. The idea is to make sure you are balancing your efforts and monitoring the progress in each of the six categories. We also want to ensure that we are balancing our people drivers with our process drivers, and make sure that the drivers are linked to our business strategy.
As a refresher, the six categories are:
People (Relationship Drivers)
- Employees
- Customers
- Shareholders
Process (Productivity Drivers)
- Make/Buy/Service
- Sell
- Record Keeping
The main reason to create a good, balanced dashboard is to put the right indicators in front of us on a frequent basis that show us the progress we are making toward our quarterly and annual goals while monitoring key business success criteria. A second reason for the dashboard is so that we can celebrate successes and make weekly adjustments to the indicators that are off track. We recommend that you develop 2-3 KPI’s per category. The more you have, the less important they are and the harder it is to track. Create a balance between leading indicators and results indicators. I tend to lean towards more leading indicators, as these are the KPI’s we can adjust to drive the business rather than gaining historical perspective from results indicators.
The best way to develop the right KPI’s is to work with your team. Ask the question "what business problems are we trying to solve?" "What information do we need to track to make sure we are making good progress towards our goals?" Ask these questions four or five times until you get the true essence of what the KPI should be. Some of the KPI’s will remain in place throughout the year, or indefinitely. Others will be put into place to align with your quarterly priorities, or to improve on a business problem you are experiencing, or a short-term project you are managing. These are called Critical Numbers. For Critical Numbers, you should leave them in place long enough to eliminate the problem, create consistency or complete the project. Once this is accomplished, you can eliminate the KPI or push it down into the operational level of the business if it is still worth monitoring.
You also want to be sure you are measuring things accurately and objectively. Try to assign clear outcomes when you develop the success criteria for Red, Yellow, Green and Super Green. We usually suggest assigning a number or a date, but there are exceptions to this as it may be an outcome you are trying to achieve. Not all KPI’s have a SuperGreen, this is your stretch goal if applicable. Green should be success while Red is absolute failure. A Yellow status is somewhere in between. Make sure someone is responsible for the KPI, and it is linked to a priority if appropriate.
It’s not always easy to develop a complete dashboard of KPI’s in one session. That’s okay, identifying the most important KPI’s up front and continuing to add to the dashboard as needs arise can be even more effective. It may take six to twelve months to refine your dashboard. Remember, less is more in this case anyway. A good time to review the KPI’s you are monitoring is during your two day quarterly planning session. This gives you the opportunity to eliminate unnecessary KPI’s and add those that align with your quarterly priorities. We also want to identify two critical numbers for the quarter to include in the dashboard. These should be at the top of your list and will quickly help you identify if you are on track to achieve your goals for the quarter. Again, balance these, as one should be process our outcome based while the other is people based. Sometimes these can be the same two critical numbers identified for the year, but not always.
Once you have built your KPI dashboard, you should review it at least weekly. We recommend doing so in your weekly adjustment meetings. This gives you an opportunity to share the successes with your team, while informing them of why a KPI is Red or Yellow and what actions are being taken to get it back on track to green. You can also leverage your team’s expertise if you don’t have the answer to get the KPI back on track. The whole intent is to monitor the right things that will help you achieve your business goals and give you the information to make necessary adjustments in a timely manner. The last tip I have is to make sure you develop KPI’s that are easy to measure and that you understand how you are going to collect the data. I have had conversations about all kinds of great activities to track, but with no methodology or easy mechanism in place to get and record the data. Remember, one person may be responsible for the KPI, but someone else may be responsible for collecting the data.
Good luck and let me know if you have any other tips to share from your company's experience.
