Peter Drucker, the famed author, educator, and management consultant, said “Efficiency is doing things right, effectiveness is doing the right things.” Whether individually or organizationally, the key to short and long-term success is to focus on the most important issues.
The problem confronting many organizations is determining where to focus their efforts and how to measure progress. Without a clear focus, organizations can become bogged down with too many performance indicators that confuse their staff and result in significant waste.
Key performance indicators (KPIs) provide the required information and motivation to assist organizations in the achievement of desired results. To be effective, KPIs must be clearly recognized throughout the organization. Their results should facilitate communication and decision-making initiatives across all levels of the organization.
The following thoughts are offered as fundamental considerations, which can be used to narrow a focus on the more important issues confronting organizations.
KPIs should focus on the vital few. The late Dr Joseph M. Juran, considered by many experts to be the foremost quality and process improvement guru of the 20th century, popularized the Pareto principle. If focused on the trivial many, too many things will consume valuable resources with less than significant results to the bottom line. Managers have a habit of wanting to measure everything whereas KPIs should be laser-focused and process-based.
KPIs should be strategic. KPIs should be linked to the organization’s strategies, goals, and objectives. They should measure performance toward the strategic intent that’s been determined by senior management. It is critical that the KPIs measure the most important issues to achieve meaningful success.
KPIs should be relatable. KPIs include both financial and nonfinancial measures that reflect an organization’s business. While it may be easy to measure performance in terms of financial factors, it is important to establish KPIs that can be related to all levels of the organization. For instance, return on investment or return on equity would not typically be effective measures for production personnel. The factory floor, however, can certainly relate to defect rates or units shipped (for a specified time base). If KPIs are not relatable, most of the organization will be confused and left out of the drive to make operational improvements.
KPIs should be achievable. KPIs set at higher levels can adversely impact employee morale and subsequently organizational performance. After Philip B. Crosby, author, and management consultant, developed his zero-defect program in the 1960s, many organizations adopted zero-defects as a KPI. These managers misinterpreted Crosby’s focus, so these organizations encumbered their personnel with an impossible challenge. KPIs may be set regarding benchmark or historical levels. Lowered defect targets should certainly be a stretch for the organization, BUT they must be achievable. If not achievable, it can devastate workforce morale.
KPIs must be based on valid data. Organizations must ensure their measuring system is valid. Niels Bohr, the Danish physicist who received the 1922 Nobel Prize in physics, once said, “Accuracy and clarity of statement are mutually exclusive.” Striving to obtain any KPI data is a challenge for many organizations and data accuracy can be an even greater task. As an example, to determine the amount of variation of the measurement system, repeatability and reproducibility of measurement equipment should be performed to determine validity. In other words, the KPI measurement system must yield data that are meaningful, timely, and reliable for effective decision-making.
KPIs should be controllable. Peter Drucker said, “What gets measured, gets managed” or what is measured is what you get. More importantly, what is measured must be controllable to obtain the desired strategic objectives. Individuals within the organization must be empowered to make necessary adjustments to generate positive performance outcomes. The simple act of empowering all levels of the organization, by itself, leads to powerful results. The simple act of paying attention to something will cause the organization to make connections they never did before, and these areas will be improved, almost without extra effort.
KPIs should be embedded. KPIs should be embedded in everyday use and be a part of the working experience. All organizational members should be exposed and trained to work in a KPI-driven environment. Sadly, many organizations still fail to realize the importance of this step and later are confused when falling short of their desired results. All too often, organizations determine their latest and greatest KPIs without a concerted plan to educate their workforce as to what it takes to achieve success.
Many organizations realize the power of KPIs, but some are still wrestling with how to use them effectively. Organizations need, however, to remind themselves that while Drucker’s quote, “what gets measured gets managed,” is true the challenge is to have the right measures – because the wrong measures can lead to disastrous results!
Quality professionals are in a great position to help their organization navigate through the data and confusion by the rhetoric to select the appropriate KPIs. They have the training, experience, and wisdom to guide their organizational management through the maze. If not already, quality professionals should step forward to take on an active role as advisor and confidante to leadership.