Posts Tagged ‘KPI’

Setting KPI’s

March 18, 2013

Brief and to the point. Setting KPI’s is difficult, but people tend to make it more difficult than it is. Check out smartcompany.com’s take on setting KPIs. It is mostly in line with my own view, apart from the fact that where they say you can either have many or few, I would strongly emphasize ‘few.’ Especially from the perspective of procurement or managing people.

KPI Park

This area is very near to my heart as I have seen this done badly in a number of ways including:

  • KPI’s that are unrealistic or way out of the control of the party being measured. Nothing will be 100% within anyone’s control, but there needs to be some correlation between the KPI and reality.
  • KPI’s that, if completed, would have very little effect on overall performance. I have been in multiple situations in which I could either perform to the KPI, or I could do the stuff that helps my organization perform better, but not both. Don’t be the organization that makes the employee or supplier make that choice…
  • Don’t be falsely scientific. Formulas that assign 1-10 or high, medium or low should not be part of a mathematical formula. In statistics, high medium or low are called ‘factors’ and are treated differently than qualitative variables. If you think about it logically, ‘medium’ is not necessarily 33% higher than ‘low.’
  • KPI’s not tied to any strategy or even impetus for improvement. If the onus is put on one individual to change the world, but they are not allowed to affect change, then the result is absurdity.

If you are going to tear down, then you must build it back up as well right?

  • Make stretch targets that are achievable – innovative people like to be challenged with reasonably difficult targets…and then get rewarded for doing so. They have to feel, however, that they are possible and that they have the mandate to fundamentally change the way we are currently doing business (how could you get breakthrough results without major change?).
  • Make KPI’s ‘intermediate’. I.e. don’t target suppliers with an increase in your share price (how could they possibly influence the psychological swings of hedge fund investors?), but target them with improvements in productivity in your organization that could be reasonably expected to contribute to a rise in share price.
  • Make them together with the supplier/employee. It is almost a cliche at this point, but people and organizations respond much better when they contribute to the forming of the KPI’s by which they will be judged. They will have insight into what makes for better performance.

There is probably many more on both sides of the line. Give me your KPI success or failure stories in the comments section. If you do, you’ll get a free one-year subscription to TPS planet.

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