Volume No. 59

Don't Go Overboard on KPI's

While much has been written in the past about performance management, most of it has dealt with things like the design of measures, development of targets, benchmarking, reporting methods, and IT solutions. Precious little has been written on the quantity of measures…essentially the question of “how many” measures an organization should have as you begin to cascade past the first few levels.

As most of you know from my past writings, I am a big fan of the “fewer is better” principle, the reason being that focus becomes distorted once you get past a certain number. Quite frankly, I don’t know psychologically why that is, nor do I really care. The less people need to remember, recall, and process, the more likely it is to stick. Ever wonder why things like social security numbers and phone numbers are broken up into three to four digit “clusters of numbers?” It’s been scientifically proven that people recall numbers less than seven digits at far greater levels than they do larger ones, and the recall is further enhanced by breaking it up into three and four digit “chunks.”

The number of measures shouldn’t be any different. In fact the word KEY in key performance indicators (KPI’s) suggests the need for that very level of focus. But for some reason, the design principle steering today’s KPI development seems to be favoring the “more is better” principle over more focused measurement design. In the last three weeks, I either spoke with or visited five companies that have an executive KPI “dashboard” in place. Four of the five organizations (and they were NOT alike in any way – different industries, geographies, and cultures – most had more than 15 KPI’s with one of those organizations nearing 40!

So here are some things to check for to ensure you have the right number and type of KPI’s:

1. Don’t confuse “balance” with volume:

While organizations are encouraged to have a “balanced” set of KPI’s (e.g. a “balanced scorecard”), it does not mean that every business unit and functional workgroup in the organization’s structure needs to have the same degree of balance. Some functions exist for the sole purpose of moving one or two key indicators, and may legitimately have nothing to do with others. You’re better off with that group being responsible for 3-4 relevant indicators instead of a “balanced” suite of 25.

2. Don’t let the complexity of your metrics portfolio dilute the vision and compelling narrative of the business:

Some of the best companies out there have developed a short and compelling narrative or “elevator pitch” that encapsulates the essence of the companies vision, mission, and strategic plan (our history, current vision, purpose, main points about strategy, and how we will measure success). What’s important here is the ability of the drive the “recall” of vision by the employees who are responsible for internalizing it and carrying it out. Better to have a few indicators they can relate to, internalize and influence than a multitude of indicators that go largely unnoticed.

3. Make the numbers mean something:

Often, that will mean avoiding the “index” or “roll up” type of indicators. The types of indicators often have meaning only to the person who built the underlying algorithm behind it. While it is ok to use these kind of indicators sparingly (perhaps at the high levels where they can be easily interpreted, I’d be inclined to get these indexes quickly translated into units that represent results. For example a CSI (customer sat index ) of 45 versus metrics like % of customers dissatisfied with service call, % rework, and first call resolution %. If you can create meaningful #’s, the need to measure a large number of “component” metrics typically goes down, freeing up attention to focus on the drivers and causal factors that will end up having much more impact on maximizing your PM dollar.

So there you have it, a simple list of three tips (not 5, 8 or 10, but 3)…hopefully simple enough to recall as you continue to improve your PM process.

Author: Bob Champagne - UMS Group, Inc., a privately held international management consulting organization specializing in Performance Management tools, systems, and solutions. Included in UMS Group's product portfolio are a wide variety of performance tracking, reporting, and benchmarking solutions, as well as customized performance assessments and diagnostic services. UMS Group has consulted with hundreds of companies across numerous industries and geographies. Visit UMS Group at http://www.umsgroup.com or contact us directly at +1 973.335.3555.