KPIs: they are indispensible for the execution of complex strategies in dynamic markets. Only by creating transparency as to your performance can your organisation's goals and ambitions be translated in concrete terms for the work floor. Besides, KPIs - at least in the best case - offer the essential information which allows for the adjustment of an organisation's course and for agile maneuvering in the context of market shifts. Despite these advantages, KPIs are rarely self-evident and, if used in the wrong way, can actually hinder your organisation in unexpected ways; or so Peter van Geelen tells us in his book KPIs That Work (Vakmedianet, 2016). We loved this book at Bizaline and of course, we're happy to share its most important lessons with you.
1. Less is more
One common mistake in designing KPIs for an organisation is to simply use far too many of them. This doesn't just lead to a downright terrifying reporting workload, but also renders steering groups overhelmed by the amounts of information they need to process. That's why this book suggests starting with the four most important strategic goals for your organisation: one overarching vision or ambition, a goal for your growth strategy, a goal for your productivity strategy, and one for your organisation's distinctive advantage or added value. KPI's can then be used to translate these strategic goals into concrete performance targets. By pursuing a limited number of KPIs at the various levels in the organisation (the book suggests 15-20 strategic KPIs for management; a maximum of 12 KPIs for each customer value chain; and just a few process KPIs for the teams within) nobody will fail to see the forest for the trees.
2. Think in customer value chains, not in silos
Many organisations take their own organisational structure as the point of departure for their KPIs. But when departments like Logistics, Sales and HR fail to align their KPIs with each other - and with the customer - this often leads to cooperation issues and potentially large failure costs. In such cases, departments are reduced to silos which no longer look beyond their own KPIs, taking for granted that - as long as they achieve their own targets - they're doing exactly what they're supposed to do. The interdependencies in the value chain are lost, and performance reviews can turn into blame games: everyone will have their reasons why any underperformance is somebody else's fault. However, by designing your KPIs cross-departmentally, in accordance with customer value chains (the process from initial demand to a satisfied customer), such situations can be prevented and an organisation can strive for continuous improvement holistically.
3. Dynamic planning and control
The traditional approach to planning and control cycles is pretty outdated at this point: a yearly planning session ("executive retreat") supplemented by monthly (or even quarterly) performance reviews for each individual department. This, while markets move at blistering speeds and the heartbeat of an organisation refuses to be dictated by the calendar. For this reason, it is important to ensure your planning and control cycles are dynamic and linked to the customer value chains. When a particular customer value chain contains a massive amount of rendered services, it is probably wise to consider potential improvements and adjustments on a more frequent basis. Meanwhile, an innovation department might not need a monthly performance review when its products are delivered on a much slower time scale.
4. No more lists: make a KPI tree
KPIs are often represented in large tables, where each KPI is attributed a RAG status, percentage, or number. Unfortunately, such an approach renders the interdependency of KPIs invisible, which makes it nearly impossible to adjust the organisation in a proactive fashion. A KPI tree is a great solution: it shows you how KPIs at earlier stages in your value chains (e.g. percentage of products delivered on time) are linked to important lagging indicators (customer satisfaction). Just having a list of KPIs and results won't do this for you. By using a tree, in which the cause-and-effect relationships between your customer value chains are clarified, your organisation will gain in agility, and staff will be more motivated to improve processes.
KPIs That Work is a book is a great book: it's filled to the brim with insights that can help every organisation to analyse their customer value chains, improve their processes, and proactively adjust course to realise long-term strategic goals. A number of the features in our software - like our flexible automated KPI reporting cycle and tools to design and visualise your KPI tree - are perfect to apply the insights from this book in everyday practice. We highly recommend this book for anyone who wants to get a stronger grip on their organisation's performance!
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