Conventional wisdom tells us a few things about establishing key performance indicators. It goes something like this: Determine your corporate goals. Identify metrics to grade progress against those goals. Capture actual data for those metrics. Jam metrics into scorecards. Jam scorecards down the throats of employees. Cross fingers. Hope for the best.
In an episode of the TV series "Undercover Boss," Waste Management president and COO Larry O'Donnell walked in the shoes of his employees for a few days under the guise of an alternative identity. He discovered firsthand the effects his KPIs had on employees. Specifically, a productivity and efficiency KPI convinced one of his "co-workers for a day" that to satisfy her production quota she needed to urinate in a coffee can to save time. As a truck operator, stopping to find and use the restroom adversely affected her performance grades. Therefore, she decided it was more efficient to use a coffee can she kept with her in the vehicle. O'Donnell later acknowledged that this was not what he had in mind when he selected the KPI.
What happened here is not uncommon: Well-intentioned executives attempted to establish goals and track their progress. This is perfectly reasonable. In fact, the intent is downright expected. Unfortunately, the events that follow frequently turn into a twisted game of telephone. Many would argue the cause for this scenario was a failure in communication. Maybe the communication plan was ineffective, or maybe the organization neglected to support the specifications of the plan. Worse yet, maybe there was no communication plan at all.
Although a well-defined and executed communication plan is essential, that alone does not solve problems related to establishing KPIs. Communication problems are merely friction. Although that friction can be strong enough to prevent an intended execution, reducing that friction alone does not guarantee success.
Core Attributes of Effective KPIs
Many organizations have adopted a specific approach for establishing KPIs. It is called the SMART criteria technique, and in a nutshell, it requires that a KPI must satisfy these five criteria: specific, measurable, attainable, relevant and timebound. "S-M-A-R-T" is a fine way to spell KPI, as this a solid framework for making decisions about KPI selection.
Unfortunately, organizations still find themselves unsatisfied with the results of this technique due to a misinterpretation of the term "relevant." Usually, this is narrowly defined as "relevant to company goals," but what about the individual? If KPIs only become effective when individuals throughout the organization are aware of them and working toward improving them, they will only achieve widespread adoption when the metrics are made relevant to the individual. Without relevancy, organizations are left to bet on communication alone to convince and persuade others into acceptance.
Putting the R (for Relevant) in KPI
By making KPIs individually relevant, you can begin to reach individuals capable of having a positive impact and keep them motivated to perform well against specific metrics. Fortunately, the journey to pervasive adoption is straightforward. Leverage these seven simple strategies to put the relevance back into your KPIs.
- Identify target audiences. How can we select KPIs that are meaningful to others if we know nothing about their identities? It is especially important to find teams and individuals across the organization who have the ability to directly impact the health of the business. These are usually not the leaders and strategists, but delivery folks executing on and managing the front lines. To gain initial momentum, it can be helpful to first identify specific individuals and then extrapolate cross-functional audience types from this list.
- Ethnography. Take a holistic approach to studying your people - observing them in their work environment to better appreciate their needs, motivations, goals, desires, constraints and obstacles. Use research methods such as participant observation and contextual inquiry to gain these insights. If these methods are not feasible, interviews and questionnaires can suffice. Focus your research on answering questions like: Are they driven by financial, intellectual and/or emotional goals? Are they motivated by fear? This information can then be used to establish tangible personas that synthesize these attributes. Personas can serve as powerful communication tools and grounding mechanisms that aid critical business decisions like selecting KPIs.
- Identify business rhythms. People and businesses have their schedules and routines. Once key individuals and teams have been identified, determine the patterns and frequency of their activities. The SMART criteria tell us that good KPIs are also timebound, so select metrics that align with these business rhythms.
- Perform affinity diagramming. An important part of selecting KPIs is understanding where individual goals and activities are not aligned with corporate goals and strategy. The prework necessary for this sort of gap analysis exercise can be accomplished through affinity diagramming. Affinity diagramming (also known as the KJ method) is an effective technique for efficiently making sense of large quantities of qualitative data and unstructured content and is even more effective when executed as a team. Affinity diagramming for both scenarios is critical to the next strategy, gap analysis. (See sidebar.)
- Conduct gap analysis. To move forward, it is crucial that we understand the current state. Misalignment between company and personal goals can impact effective KPI selection. Use a gap analysis to uncover any misalignments. Another organization technique, mental modeling, builds upon the affinity diagramming strategy and clearly identifies gaps to a visual representation of its inputs. (See sidebar.) The mental model clearly illustrates when the individual is focused and/or motivated to affect tasks/metrics that are not consistent with corporate strategy and vice versa. Knowing this information is extremely advantageous, as it gives your organization a blueprint of areas to address from a business process/organization standpoint or to consider and target when selecting KPIs.
- Consider the domain of control. Select KPIs that fall within the actionable domain of key personnel. For example, a large retail client once described a series of periodic reports that were packed with pages of metrics to which the store managers were held accountable. They were affectionately labeled "worry reports" because the reports contained too many metrics that the managers had no ability to influence. This is where knowledge of the work-life details for such individuals is crucial for selecting the right KPIs. KPIs should be easy to calculate, clearly defined and focused in purpose. Also, they should tell a very rich story in that they take into consideration a comparable entity (versus budget, forecast, last year, variance to average, etc.). Selecting KPIs using this criteria increases clarity, focus, determination and motivation in the individual.
- Compensation alignment. This is the ultimate strategy to make KPIs relevant for an individual and is simple but effective. Identify metrics that are tied to the compensation (bonus or base) for an individual. If those metrics are not aligned with corporate goals or strategy, assess and adjust the compensation model as necessary. Ultimately, it can be very difficult to consistently motivate individuals to work to improve KPIs when they are not rewarded for doing so. Without such a reward, any benefit from improved KPIs will be perceived as indirect in the eyes of the individual.
Once you've done all the work to select and establish relevant KPIs, follow up with the involved parties. Executing these strategies has the beneficial side effect of a personal relationship. Seeking out someone's perspective does wonders for initiative adoption programs, especially at the delivery levels of the organization. Take advantage of that momentum and follow up with these individuals on a recurring basis to continue to fortify those relationships and strengthen the purpose behind establishing KPIs in the first place.
Take First Prize
Engage. Understand. Empathize. Show compassion. Achieve corporate and individual alignment by selecting KPIs that are personally relevant. The next time you begin selecting KPIs, remember to spell KPI next time with a capital R. You may not win any spelling bees, but you will be better positioned to effectively monitor and improve business performance.
Diagramming and Modeling
To create an affinity diagram, just write any extracted insights about personas (focus on individual motivations, goals and activities) on sticky notes. Then, group similar sticky notes together into a number of physical groups/piles. Next, create groups of groups, if possible. Finally, label the groups (both the original groups and the new super groups) with meaningful one-to-three word phrases. Capture this information electronically, preferably arranged in a spreadsheet file. Place the super group labels across the top of the spreadsheet in the first row. Place the group labels in separate columns in the second row under the super group headings. Transfer the words from the sticky notes to cells under the coordinating group label. Repeat this exercise, but instead create sticky notes that describe the corporate goals, strategy and initiatives. Also, reuse the same group and super-group labels that were just created instead of creating new labels.
To build the mental model, merge the results of the two affinity diagramming scenarios (individual versus corporate) in your spreadsheet by copying and pasting the results of the corporate-focused scenario below the results of the individual-focused scenario. Since the labels were reused for the second scenario, the data should align. Now, although the data points align, the values visually indicate where the individual and the company deviate, because each group for each scenario creates a virtual tower of varying height. Analyze the results of the illustration by simply identifying where the tower sizes are relatively and significantly unequal.