8 things to know about Key Performance Indicators (KPI)
What constitutes a KPI
KPI is one of those buzz words that is thrown around relentlessly and carelessly — Since it is not directly affecting any decisions, this self-marketing overlooks the whole idea and most often results in mass confusion.
Let us talk about what a KPI should be and what can be avoided in its implementation.
1 — Based on a standard model (where applicable)
Since I am getting old(er), the blood sugar levels seem to be more and more relevant dictating my exercise and diet routines. But when I look at a particular report by the labs, is it just a number I am reading and do the numbers mean the same thing in Europe, Asia and the US? Having done it in all three places, I can tell from experience that the scale and numbers are quite different and unless you are aware of the standards they are following, expect a heart attack to precede diabetes.
Hence, when we design a KPI for Supply chain, Finance or HR, there are always models available for reference and implementation. This does not just provide a valid justification for going in a particular direction but is portable to a new branch or organization being industry certified.
Some of the standards out there are maintained by world bodies, for example SCOR is for supply chain.
2 — Trend over time
KPI are not only targeted but self-competitive.
They are not only measuring the performance but the impact of interventions between these measurements. Having a reference to the past is key to knowing what happened and why.
Going back to blood sugar, if it indeed decreased over the the last four quarters, there is obviously a change of lifestyle in there somewhere. More vegetables, less bread seem to be the straightforward deductions. There could also be the 30 minute run helping burn the excess calories. Knowing these elements, one can reinforce their importance and likely enhance their frequency and strength.
In terms of corporate KPI, this could mean a particular training helped enhance employee skills or the introduction of a certain mobile app helped warehouse managers to tick off the data without having to run back and forth to their computers. Only comparing them in the context of before and after would sensify it.
3 — Time bound
Going forward with the above, the KPI cannot compare the time it took to complete the pyramids in Giza against the Empire state building in NY.
Similarly, comparing my blood sugar level as a kid to an adult version would be absurd.
Corporately, every few years the technology, skills, market dynamics change considerably. The teams heading their respective KPI exercises need to be cognizant of these facts and encircle their timelines accordingly. We are trying to measure performance within the fairest parameters and perhaps should be reminded that nothing except the laws of physics are set in time and space.
4 — Targeted
The most obvious and yet the most misunderstood aspect of all is a realistic approach to achieving better and better results. To the untrained optimist, the target of 100% would just suffice and perhaps going beyond that could be breaking new barriers of innovation and creativity.
In real life though, a car capable of showing 240 Km/h on its speedometer is never expected to hit that mark. It would either break something fundamental or worse end up endangering the driver and fellow passengers. Similarly, depending on the operational constraints, the approach should be flexible — If somewhere the general performance is lagging at 60%, then aiming for 100% becomes unreal and stressful. Go with 90% and then keep it as is for the next couple of quarters or years and only upgrade once there is ample evidence that it would keep getting better.
5 — Linked to corporate objectives/strategy
Most likely and sanely, a division or unit would be measuring multiple KPI pertaining to their specific business. Assigning the right weightage to each of them would be an essential consideration and that can only be done by knowing what is the ultimate goal and vision of the unit, division and ultimately the organizational mandate.
Our pulse, blood pressure, blood sugar level and weight are all key indicators which give us a snapshot of our body chemistry and composition. Measuring them with the intention of living a healthy life to its full potential makes them insightful and relevant.
Beware of impostors
As lightly touched at the start, painting a donkey in black and white stripes does not make it eligible to be a zebra. No offense to either donkeys or zebras.
Many a time we see casual numbers being branded as KPI. Not always intentional but definitely in the realm of malpractice. This usually happens some of the above considerations are left out
6 — Statistics
Let us get into a scenario where we are keeping an inventory of laptops in our little shop. The inventory keeps going up or down depending on the customer sales, sourcing from the dealership and other supply chain constraints. Measuring how many we have at any given point and all over history does not make it a KPI — That is just a statistic.
However, defining a target of keeping at least a 100 laptops available at all times gives us a target to meet and a percentage to calculate.
7 — Alerts
Carrying on with the above inventory management, getting an email whenever the number of your laptops falls below 80 is highly recommended and useful. Calling it a KPI is not.
In simplest terms, this is an alert which signals us to perform certain actions within a timeframe to restore the balance of the universe.
The number of alerts received in a month could however be a KPI giving an overview of our replenishing strategy, sales frequency and procurement to delivery efficiency of the dealership.
Don’t hate me — Hate my game
Measuring performance is not an act of espionage or competition. That would be saying that your glucose blood test is meant to pitch you against the 8 billion rivals on this planet.
8 — Better, not best
Using KPI does not mean continuous improvement but rather always striving towards a designated target value — Now that ought to relieve some of the pressure.
Last point to note before we close is that all companies and individuals work in different operational contexts with unique challenges — Therefore,
These exercises need to be subjective and empathetic
It is not to police or categorize anyone
There are no winners or losers here.
Signing off on these core tenets right in the beginning would put more positivity into the exercise and instill confidence within the teams.
