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Exhibit P.3 Linkage of KPIs to Strategic Objectives
Improving Performance
Performance measures can and should have a profound impact on performance.
Measurement:
● Tends to make things happen, it helps people see progress and motivates action.
● Increases visibility of a more balanced performance and focuses attention on what matters.
● Increases objectivity – Dean Spitzer2 points out that staff actually like measuring and even like being measured, but they do not like being judged subjectively.
● Improves your understanding, your decision making, and execution – Spitzer points out that that you will not be able to execute well, consistently without measurement. Measurement can improve your business intuition and significantly increase your “decision-making batting average.”
● Improves consistency of performance – Spitzer has stated that outstanding success is about consistent success over the long term.
● Facilitates feedback on how things are going, thereby providing early warning signals to management.
● Helps the organization become future ready by encouraging timely feedback, looking forward by measuring future events (e.g., a CEO should look weekly at the list of celebrations, or recognitions, scheduled for the next two weeks), encouraging innovation, abandonment of the broken, and supporting winning management habits such as recognition, training, and mentoring.
Creating Wider Ownership, Empowerment, and Fulfilment
Peter Drucker3 talked about leadership being very much like an orchestra conductor. Giving the general direction and the timing and leaving the execution to the experts (the players). Performance measures communicate what needs to be done and helps staff understand what is required. They enable leaders to give the general direction and let the staff make the daily decisions to ensure progress is made appropriately. This shift to training, and trusting staff to make the right calls is very much the Toyota way. Any incorrect decision is seen as a fault in training rather than with the individual. The delegation of authority to the front line is one of the main foundation stones of KPIs (see Chapter 7). This issue was discussed at great length in Peters and Waterman's In Search of Excellence.4
I have yet to meet a human being who desires failure or finds failure rewarding. Where measures are appropriately set, staff will be motivated to succeed.
Kaizen and this KPI Book
Kaizen states that innovation is a daily activity. This third edition of my KPI book is my contribution to continuous improvement. It includes the latest evolution of my thinking which, between editions is recorded in my KPI5 whitepapers.
This book is designed to help those project managers who are about to embark on a KPI project, as well as help senior management understand why they need to revisit their measures. The new content in this third edition is set out in Exhibit P.4.
Exhibit P.4 New Content in this Third Edition
Barriers to KPIs Working Properly
Since I wrote the first edition of this book, I have become acutely aware of the reasons why KPIs are failing. This third edition is my latest attempt to circumnavigate around the negative forces that are, not only limiting the effectiveness of KPIs, but, are inhibiting many enterprises from becoming future ready.
Myths Surrounding KPIs
Before we can enter into the discussion of implementing KPIs, we need first to examine why you want performance measures in your organization. There can be many reasons and some will most certainly lead to failure. Thus, I have looked at some of the myths around performance measurement.
One main factor is a lack of understanding of the myths surrounding performance measures.
Just like six centuries ago when the belief that the world was flat held back progress, we are blindly applying old thinking to how we measure, monitor, and improve performance (see Chapter 2 on the Myths of Performance Measurement).
Unintended Behavior: The Dark Side of Performance Measures
Measurement initiatives are often cobbled together without the knowledge of the organization's critical success factors and without an understanding of the behavioral consequences of a measure. Chapter 3 explains that every performance measure has a dark side, a negative consequence. The key is to understand it. Well over half the measures in an organization may be encouraging unintended behavior. This book will repeatedly drive home the importance of understanding this dark side and selecting fewer measures, as well as selecting those with a minimal negative consequence. How performance measures can go wrong can be illustrated by the train service and hospital stories featured in Chapter 3.
The Misuse of KPIs in Performance-Related Pay
KPIs are frequently used in performance-related pay contracts. This turns the measure into a Key Political Indicator, one which will be manipulated. In Chapter 2, I will address why KPIs, as defined in this book, should be “tickets to the game” and never part of a reward structure.
In Appendix A, I set out my thoughts on the foundation stones of performance-related pay.
Reasons that the Traditional Balanced Scorecard Approach has Failed
Nobody has done more than Kaplan and Norton to ensure that strategy is balanced, well thought through and its implementation is monitored and managed.
The Harvard Business School paper was a masterpiece and the following book “The Balanced Scorecard: Translating Strategy into Action” a classic from inception. As a writer I can appreciate the herculean effort Kaplan and Norton undertook to amass so much case study material in such a short time.
However, I have been concerned for over ten years now as to why so many balanced scorecard implementations fail to deliver when the concept of implementing strategy and having a balanced performance is surely a given with most of us.
I address, for the first time, the main differences between the “winning KPIs” and the balanced scorecard methodologies. I will also discuss my reasoning for the balanced scorecard failure rate and argue that the balanced scorecard fraternity needs to update their methodology (see Chapter 18).
Changes in Winning KPI Methodology
There have been some significant advancements in the methodology and these, I hope, will increase the momentum within enterprises to adopt KPIs that will help them flourish.
More Emphasis on Ascertaining the Critical Success Factors
I was first introduced to critical success factors (CSFs) by the talented people who wrote the KPI manual for AusIndustry (an Australian government department). They defined critical success factors as the “list of issues or aspects of organizational performance that determine ongoing health, vitality, and well-being.” In Chapter 2, the common myth that performance measures are mainly used to help manage implementation of strategic initiatives was highlighted. Instead,