how long have you worked for British Airways?”
Pat, realizing this conversation was not going well, responded, “About 30 years, Sam.”
“In fact, Pat, it is 32. In 32 years of experience with us you are telling me that with six hours of advance notice that the plane was already late you, and your team, could do nothing to bring it forward, and instead you added half an hour. Quite frankly Pat, I am disappointed as you and your team are better than this!”
Pat and many others employed by the airline had the “not invented by us” syndrome. A late plane created by another BA team was their problem not ours. Pat gathered the troops the next day and undertook many proactive steps to ensure they recaptured the lost time, no matter who had created the problem. Actions such as:
● Doubling up the cleaning crew, even though there was an additional external cost to this.
● Communicating to the refueling team which planes were a priority.
● Providing the external caterers with late plane updates so they could better manage re-equipping the late plane.
● Staff on the check-in counters asked to watch out for at-risk customers and chaperone them to the gate.
● Not allowing the business class passenger to check in late, yet again. This time saying, “Sorry Mr. Carruthers, we will need to reschedule you as you are too late to risk your bags missing this plane. It is on a tight schedule. I am sure you are aware that the deadline for boarding passed over 30 minutes ago.”
The BA manager at the relevant airport knew that if a plane was delayed beyond a certain threshold, they would receive a personal call from Sam. It was not long before BA planes had a reputation for leaving on time.
The late-planes KPI worked because it was linked to most of the critical success factors for the airline. It linked to the “delivery in full and on time” critical success factor, namely the “timely arrival and departure of airplanes,” it linked to the “increase repeat business from key customers” critical success factor, and so on.
It is interesting that Ryanair, an Irish low-cost airline, has a sole focus on timeliness of planes. They know that is where they make money, often getting an extra European flight each day out of a plane due to their swift turnaround and their uncompromising stand against late check-in. They simply do not allow customers to get in the way of their tight schedules.
The late-planes KPI affected many aspects of the business. Late planes:
1. Increased cost in many ways, including additional airport surcharges and the cost of accommodating passengers overnight as a result of planes having a delayed departure due to late night noise restrictions.
2. Increased customer dissatisfaction leading to passengers trying other airlines and changing over to their loyalty programmes.
3. Alienated potential future customers as those relatives, friends or work colleagues inconvenienced by the late arrival of the passenger avoided future flights with the airline.
4. Had a negative impact on staff development as they learned to replicate the bad habits that created late planes.
5. Adversely affected supplier relationships and servicing schedules, resulting in poor service quality.
6. Increased employee dissatisfaction, as they were constantly fire fighting and dealing with frustrated customers.
Example: A Distribution Company KPI
A distribution company's chief executive officer (CEO) realized that a critical success factor for the business was for trucks to leave as close to capacity as possible. A large truck, capable of carrying more than 40 tons, was being sent out with small loads because dispatch managers were focusing on delivering every item on time to customers.
Each day by 9 a.m. the CEO received a report of those trucks that had been sent out with an inadequate load the previous day. The CEO called the dispatch manager and asked whether any action had taken place to see if the customer could have accepted the delivery on a different date that would have enabled better utilization of the trucks. In most cases, the customer could have received it earlier or later, fitting in with a past or future truck going in that direction. The impact on profitability was significant.
In a scenario similar to the airline example, staff members did their utmost to avoid a career-limiting phone call from the CEO.
(Both these examples are provided in greater detail in my webcast, “Introduction to Winning KPIs,” which can be accessed via www.davidparmenter.com.)
Seven Characteristics of KPIs
From extensive analysis and from discussions with over 3,000 participants in my KPI workshops, covering most organization types in the public and private sectors, I have been able to define what the seven characteristics of KPIs are as set out in Exhibit 1.2.
Exhibit 1.2 Characteristics of KPIs
Non Financial: When you put a dollar sign on a measure, you have already converted it into a result indicator (e.g., daily sales are a result of activities that have taken place to create the sales). The KPI lies deeper down. It may be the number of visits to contacts with the key customers who make up most of the profitable business. As discussed in Chapter 2, it is a myth of performance measurement that KPIs can be financial and nonfinancial indicators. I am adamant that all KPIs are nonfinancial.
Timely: KPIs should be monitored 24/7, daily, or perhaps weekly for some. As stated in Chapter 2, it is a myth that monitoring monthly performance measures will improve performance. A monthly, quarterly, or annual measure cannot be a KPI, as it cannot be key to your business if you are monitoring it well after the horse has bolted.
CEO focus: All KPIs make a difference; they have the CEO's constant attention due to daily calls to the relevant staff. Having a career-limiting discussion with the CEO is not something staff members want to repeat, and in the airline example innovative and productive processes were put in place to prevent a recurrence.
Simple: A KPI should tell you what action needs to be taken. The British Airways late-planes KPI communicated immediately to everyone that there needed to be a focus on recovering the lost time. Cleaners, caterers, baggage handlers, flight attendants, and front desk staff would all work some magic to save a minute here and a minute there while maintaining or improving service standards.
Team based: A KPI is deep enough in the organization that it can be tied to a team. In other words, the CEO can call someone and ask, “Why?” Return on capital employed has never been a KPI, because it cannot be tied to a manager – it is a result of many activities under different managers. Can you imagine the reaction if a GM was told one morning by the British Airways official “Pat, I want you to increase the return on capital employed today.”
Significant impact: A KPI will affect one or more of the critical success factors and more than one balanced-scorecard perspective. In other words, when the CEO, management, and staff focus on the KPI, the organization scores goals in many directions. In the airline example, the late-planes KPI affected all six balanced-scorecard perspectives. Again, as I refer to Chapter 2, it is a myth to believe that a measure fits neatly into one balanced-scorecard perspective.
Limited dark side: Before becoming a KPI, a performance measure needs to be tested to ensure that it creates the desired behavioral outcome (e.g., helping teams to align their behavior in a coherent way to the benefit of the organization). There are many examples where performance measures have led to dysfunctional behavior, these are discussed in Chapter 3, Unintended Behavior: The Dark Side of Performance Measures.
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