Key Performance Indicators (KPIs) are all the rage these days. Many leaders of industry have instant access to their KPIs, but still in their gut they know that there’s much missing from the dashboard.
The famous Peter Drucker quote “What gets measured, gets managed” rings true here too. A bad set of KPIs can result in a lot of unproductive busy work, or as I like to call it Key Performance Indicator Hell.
Hopefully that’s not your situation, but if it is, here are 5 tips for to success that can help you drive performance through KPIs.
Tip 1: Emphasize the word ‘KEY’ in Key Performance Indicators
The reporting tools that have made it easier to present all your KPIs in a million different ways, created a flurry of new problems:
- Too many KPIs: By the time you’re reporting on more than 10 KPIs, chances are that some will look good and some will look bad, just due to normal variation. What does it mean to be doing great in 5 KPIs, ok in 3 KPIs, and terrible in 2 KPIs?
- Too much overlap in KPIs: Often dashboard reports show signs of major scope creep as the report writer attempts to please all viewers. When dashboard reports contain 2 or more KPIs that essentially represent the same underlying concept (i.e. total widget units shipped, total boxes of widgets shipped, total widgets weight shipped, etc) it makes it distracting for viewers to know what KPIs they are supposed to focus on.
- Too many options: Just because it’s easy to report KPIs in a variety of ways, it doesn’t mean that it’s the right thing to do. The word ‘Key’ in KPIs means that “this is one of the few that we really need to watch”. The audience is expecting that someone put some careful consideration in exactly which metrics to report and how to report them. It’s better to have 3 KPIs that everyone in the organization understands, rather than 20 KPIs and leaving it up to each individual to choose which KPIs that they understand and will focus on.
Tip 2: What’s your #1 KPI?
When driving a car, we are presented with the original dashboard. Most dashboards demonstrate that the designer sees the car’s speed as the most important KPI. Certainly more important that the odometer reading, as demonstrated by relative size, and choice of colors and lighting.
The same concept applies to your KPI dashboard. Some of the questions to consider when choosing the most important KPI are:
- Is it truly the most important KPI? For example, workplace morale may be a very important KPI, but does the KPI matter if the overall organization can’t survive financially?
- Is it a good ‘sentinel’ KPI? If this one KPI is doing well, does it imply that other KPIs must be ok as well? Is it a leading indicator, rather than a lagging indicator?
- Is it a good ‘aggregate’ KPI? Aggregate KPIs can be designed that reflect the overall performance, similar to how a grade point average is a single number summary for a student’s performance across a variety of different subjects. An aggregate KPI can be an effective way of getting the whole organization focused on a common goal.
Tip 3: Begin with the end in mind … How will each KPI drive action?
Often leaders have a lot of good ideas about the KPIs they think would be useful. If the goal of KPI reporting is to drive performance then with each KPI the following question must be addressed:
If you had this KPI provided on a reliable and timely basis, would it directly impact the actions you take?
If the answer is “no” then the proposed KPI may not be the best one to consider. Ideally KPIs should provide the right information at the right time so that corrective action can be taken, just like the speedometer in your car does.
Tip 4: Think Green, Yellow, Red
The ultimate goal is to have your KPI dashboard effectively communicate the right information “at a glance”. A strategy for increasing the readability of your #1 KPI is to use colors that are universally understood. To once again draw from the analogy of driving a car, the colors Green, Yellow and Red can be especially effective at communicating relative performance:
- Green typically means ‘ok’, good, or great. Ideally the KPI reporting is designed so that green means that performance is on target or exceeding target.
- Yellow typically means that the KPI needs attention, but it’s not in a crisis situation (at least not yet). Sometimes the color yellow doesn’t visually show very well against a white backdrop of a report, so the color orange can be a good substitute.
- Red typically means that it’s time for action – the KPI is showing that performance is below what is considered to be acceptable, and somebody needs to take some action to improve the performance.
Tip 5: Ensuring action through accountability
The best designed KPIs and KPI dashboard will go unused if people in your organization see that nobody is looking at them, or worse, people are looking at them and nobody is taking any action. The goal is to have clear accountabilities in place so that when performance is below standard there is no mystery as to who has the lead responsibility for improving performance. It’s equally important for leadership to lead by example, and demonstrate that the KPIs are being used in a meaningful way on an on-going basis to drive performance.