Life would be perfect were it not for the customers!

Many years ago I formed the opinion that, once an organisation reaches a certain size, it develops the ability to remain busy, no matter what the level of sales. By that stage, responding to customers’ requirements almost becomes a disruption; customers, in fact, only provide the cash to keep the mechanism turning!

#2 in How do we create a High Performance Culture?

So having agreed that valuing people is pretty important in bringing about a high performance culture, that is all well and good, but we need to put something tangible into our strategy. That usually means articulating some objectives, targets, expectations for the coming years. There could be sales volumes, increase in market share, increased profit (of course!) or maybe qualitative values around improved quality, or maybe reduced customer complaints. Whatever, there are usually some big numbers and all too often the strategy is short on detail. Very aspirational, but perhaps not a practical route to implementation on its own.

The problem usually comes in translating these aspirations into something relevant to the people who have to deliver on this strategy. All too often these “targets” are passed on down the line without any thought to what they actually mean to those on the shop floor. All too often they are told, “These are your KPIs”.

Kpi’s are not targets, targets are not kpi’s

If you read my last rant you will know how the wrong use of words gets me going (well, I’ve lived long enough to have earned the right to be grumpy)! Having clarified the difference between equal and the same I now move on to explain why not understanding the difference between targets and kpi’s is downright dangerous.

We live in a target-driven society. Government ministers love targets; they don’t understand them but they love to invent them, move them and change them. They symbolise assertiveness; it is a very useful ploy, setting ill-conceived targets creates so much confusion and waste that they can distract attention from what really matters until it is time to blame someone else for the mess. (Oh dear, there goes Mr Grumpy again). Seriously though, it is a real pity when organisations don’t get it right; it gives the whole subject of setting targets and kpi’s a negative image, it makes setting out to do it right so much more difficult.

So, what is the difference between a target and a kpi, and what does it take to make them valid and useful? The answer is simple, I’ll explain with a simple analogy.

Your KPIs do not seem to be very Key...

A friend of mine is a sales manager in a large retail store and recently he came up to East Putney to meet me for some lunch. Following on from our usual discussions and a random sighting of Greg Wallace from Masterchef (being his restaurant, maybe it was not that random) we began talking about his recent frustrations at work.

It seems his company has a rather different outlook to how KPIs should be implemented, and this in particular seemed to be his biggest cause of recent frustration. “I have been given 16 KPIs and not one of them is related to the sales”

I was very surprised with this statement. There were so many things wrong with it, it was genuinely difficult to know where to begin. After a few moments to gather my thoughts, I pointed out the following observations:

16 KPIs?! Nobody ever should have this many KPIs; 7 at most. They are designed so you focus on what really matters, so how can anybody focus on and manage 16 KPIs simultaneously to improve performance? It can’t be done and most of his time will be used (and wasted) in reporting.

No sales KPIs? Hang on…I thought you worked in a sales retail store? I found it incredible that in a retail store where it all about sales that there cannot be a single sales KPI. KPIs measure the key processes of your role to improve what you already do. In no circumstance should it conflict with your day-to-day work.

Given to you? Anybody who understands KPIs will be able to tell you that KPIs should never just be ‘given.’ For a manager to take full ownership of their KPIs, they need to feel engaged and accountable. Therefore they need to be involved during the KPI Implementation process. If this part was considered, it may have even stopped the other 2 situations occurring.

My friend agreed with my observations and even offered his own. Despite this, and as we all know, changing policies in large companies is certainly not an easy process. Therefore as it stands, he will continue to manage his not-so-key performance indicators. 

Does work drive you mad?

We have probably all tried some magic fix at some point; a training course to learn new skills, a smart piece of software that will make everything better. The road to ruin is paved with such good intentions; pretty soon going back and working the same old process gets in the way of doing things differently. The cost of the initiative is lost and no benefits are realised and we default to engrained habits.

When the going gets difficult we batten down the hatches and do what we always did, but work harder at doing it. In most cases, doing what we always did got us in to difficulty in the first place and working harder never fixes the problem; at best it enables us to weather the storm until the problem arises again.

“Insanity: doing the same thing over and over again and expecting different results”.

Albert Einstein

The only real way to realise sustained improvements is to develop effective processes and good habits, and that involves identifying and managing what really matters. Setting and using Key Performance Indicators (KPIs) is an essential step; having KPIs is, however, of no value unless they are used to support and encourage those good habits. What adds value is not the act of measuring, but the adoption of an intelligent approach, one that uses the right measures to develop a continuous improvement culture and to eliminate wasted management effort.

A good kpi system does not cover walls with obscure charts, or simply present the same data as a flashy dashboard, but makes achieving excellent results easier and faster. Qualitin’s ICG approach does that; it drives ownership and accountability throughout an organisation, it empowers and obliges everyone to focus on what matters to customers and stakeholders and it saves significant management time; that is why I’m an enthusiastic Qualitin Partner.

Historians versus Futurists – Who is More Valuable?

Futurists enjoy taking out their crystal ball and projecting future innovations, but they are typically wrong. For example, George Orwell’s book, “1984,” which was published in 1949, did not come close with its projections. And in the 1960s, I recall a Walt Disney television show describing automobiles that required no driver and were guided by a magnet-like strip imbedded in the street’s or highway’s roadbed. Nice try.

In contrast, historians research the past to determine what lessons might be learned and applied today. For example, historians examine the judgments, policies and actions of past U.S. Presidents and international government leaders to assess what actions may best serve citizens today. The recent movie “Lincoln” is an example.

But which group -- futurists or historians – provides more useful information? Futurists make us think by being provocative. Historians allow us to reflect on what worked or did not work in the past.

This question is relevant for today’s organizations because many enterprises fail to successfully execute their executive team’s plans and allocate an appropriate mix and level of resources to complete those plans. This involves strategy and budgeting – two disciplines that are widely criticized today. 

Historical Lessons Applicable to Strategy Execution and Budgets

In the book, “The Art of Action,” author Stephen Bungay reflects on lessons from war and military campaigns that can be applied to leadership skills and planning. He specifically addresses how an organization can implement and achieve the formulated strategy and plans of its executive team.

Bungay’s premise is that the leaders of almost all organizations can define reasonably good strategies. Where executives often fall short is in leading their organization to execute their strategy. Bungay describes this problem as a gap and advises how to close the gaps.

His assertion is that, similar to military campaigns in war, when a strategy encounters the real world, three types of gaps appear. He describes gaps in terms of expected results and reality, particularly related to outcomes, actions and plans. Gaps result from the complex and unpredictable environments that all organizations deal with and are made more severe by globalization. The three gaps are:

1. The Knowledge Gap - The difference between what we would like to know and what we actually know.

2. The Alignment Gap - The difference between what we want people to do and what they actually do.

3. The Effects Gap - The difference between what we expect our actions to achieve and what they actually achieve.

Based on knowledge as a historian of military practices, Bungay observes that a key to successful strategy execution is delegating more decision-making authority to managers and employee teams. 

Empowering Managers and Employee Teams

Bungay recounts lessons from the 19th century Prussian army. Following an unexpected military defeat, the Prussian military reformed its tactics. Lower-level officers were given more flexible command to make decisions. What mattered was that they fully understood the battle mission. Allowing the officer corps to make more decisions resolved a problem: The higher-ranked military leaders were from farther from the battlefield and less aware of the current situations. Officers could pursue local actions as they saw fit.

The Prussian army solution was the institutionalization of military genius with centralized and elite generals, and increased accountability of the field officers with rewards based on their performance and outcomes. This reform was successful, and the army conquered other countries.

In terms of today’s managerial methods, the parallels of the Prussian army reforms are the application of balanced scorecard methodology and the adoption of “Beyond Budgeting” concepts, first written about by Robin Fraser and Jeremy Hope.

The balanced scorecard’s primary feature is the development of a strategy map that visually displays a dozen or more cause and effect-linked strategic objectives. Using four sequenced components (referred to as “perspectives”), the linkages move from employee learning, growth and innovation to process improvement initiatives to customer loyalty objectives, which all impact the outcome of financial objectives. The KPIs reported in the balanced scorecard are derived from the strategy map. The KPIs monitor the progress toward accomplishing the strategic objectives and, with each KPI assigned targets, the foundation for accountability is established and alignment with the mission and strategy is achieved.

The “Beyond Budgeting” concept views the annual budget as a fiscal exercise done by accountants that is disconnected from the executive team’s strategy and is usually insensitive to forecasted volume and product/customer mix. It acknowledges that budgeting annual line-item expense limits are more like shackling handcuffs to managers; they may need to justifiably spend more than was planned for and approved many months ago in order to take advantage of newly emerged opportunities.

This method advocates abandoning the annual budget, which quickly becomes obsolete. It proposes removing the budget’s controls by giving managers the freedom of decision rights, including hiring and spending decisions without requiring approval from superiors. It invokes controls by monitoring non-financial KPIs against the targets defined by the executives in the balanced scorecard’s strategy map. Managers do not escape accountability, and there are consequences. The time frame is not annual, but rather dynamic. Historians versus Futurists

The message here is not that organizations should not be researching emerging and imminent new technologies and methods, like analytics and big data. The message is that granting decision rights to managers – but holding them accountable with consequences – is effective at closing the three gaps. And this is a lesson learned from historians.

Gary Cokins, CPIM (gcokins@garycokins.com; phone 919 720 2718) http://www.garycokins.com

Gary Cokins (Cornell University BS IE/OR, 1971; Northwestern University Kellogg MBA 1974) is an internationally recognized expert, speaker, and book author in business analytics and enterprise performance management systems. He is the founder of Analytics-Based Performance Management LLC, an advisory firm located www.garycokins.com . He began his career in industry with a Fortune 100 company in CFO and operations roles. He then worked 15 years in consulting with Deloitte, KPMG, EDS, and SAS.

The real value of practising what you preach

Sometimes you need to ‘practise what you preach’ in order to fully understand the benefits of your product.

Everybody 'knows' what the benefits of their products are. For instance, I could tell you how simple, practical and effective our KPI management System is and why it is more powerful than alternatives on the market. But that does not necessarily mean you fully understand its true value. This is something that certainly applied to me and why I now understand the importance of practicing what you preach.

At Experian UK, I was the system administrator for 600 system users across our business units. It was my duty to support all the KPI Managers with the system; explaining how to use it and why.

The trouble was though, I was only supporting the process and not part of the process. I was on the outside and therefore not embracing what ICG was really about.

Clearly I always liked the product. So much so that I even ended up joining Qualitin! But it was the day of our Partners event where I understood ICG's value. This is the day where I knew I would be required to present my KPIs, results and proposed actions.

Having all your data on display for everyone to see meant there was no hiding away. Everybody could clearly see what my targets were for the month and what I had actually achieved. Everybody could see my red KPIs (unfortunately there were a few that day I recall) and so I explained what I intended to do about improving the situation for next month.

It was at that moment though where it all made sense. Firstly having my data on display had provided me with the necessary self-discipline to be appropriately prepared for the meeting. I did not want to be shown up after all. Secondly, everybody was less interested in the fact a couple of my KPIs were red. The focus was far more on my analysis of the situation and what I intended to do about improving it.

Therefore now when I describe ICG to someone I would no longer just use the words ‘simple, effective and practical’. These just describe ICG as just a tool and certainly do not provide ICG justice. Instead the words ‘ritual’, ‘forward-thinking’ and ‘self-discipline’ are a better match because these words describe what ICG does, not what it is.

Now, and only now I can now honestly say I understand the true value of my product.

Using KPI’s to Coach for Performance Improvement

Several years ago, I led a culture change in a manufacturing organisation. We removed a top down, high dominance structure and replaced it with customer focussed cells. During the reorganisation, we moved relatively inexperienced people into new leadership roles. Why did we do this? Because the company had realised that a top down, “tell them what to do” culture wouldn’t provide the speed of change needed to complete successfully. They needed empowered, autonomous teams with the potential to deliver results. 

So how do you manage empowered, autonomous teams, given that they must be autonomous and not managed? 

 How do you ensure that they understand the company goals and all their actions are geared to achieving them? The answer is to use the overall company goals and objectives to define team goals and objectives. 

A system of performance measurement (KPI’s) and regular review meetings can then be used to deliver the goals, but allow the leaders autonomy with their teams. 

If managers hold regular KPI review meetings, they clearly define what they expect from their teams and action plans can be developed to meet the company goals. Thus, the company has systems to manage the delivery of company goals. 

The impact on individual employees is that their goals and objectives are very clearly defined. They and their peers can clearly see who is delivering against expectations and who is not. 

For managers, performance coaching then becomes more objective. High performers are easily distinguished and can be rewarded accordingly and poor performers can be identified and then managed objectively, with performance reviews focussing on results and how to achieve them. This avoids personal criticism, which makes the review easier for the employee. They become more receptive and less threatened by the discussion. Focussing on achieving objectives and the steps they must take enables the poorer performers to achieve more than they would without this focussed coaching. If the poor performer is repeatedly unable to meet goals, then the management of their exit from the organisation is easier for both the manager and the employee. 

Using KPI’s with regular, action based reviews, gives teams and their leaders a clear view of what is expected from them and gives the responsibility and autonomy for the delivery of results to the team. With clear direction, the teams are then empowered to deliver high performance against company goals.

Written by Jane Burns - Manufacturing Coach

PERFORMANCE INDICATORS: THE FEW VITAL ONES

As soon as we learned the importance of measuring results in the early nineties, we fell into a trap from which few were able to escape: we started to measure in excess.

Information technology, which allowed us to have increasingly detailed and up-to-date data, contributed a lot to this tendency.

In a hospital, in an IT area, in a restaurant chain and in many other organizations we'd find books with monthly updated figures, and we learnt to challenge people to present that which made a difference on a single A4 page.

The trick is to consistently measure that which is important and is (or may become) a problem.

In a factory, only single indicator: machine yield, caused an almost unbelievable revolution. In a dispatching area, the focus was on counting the number of cargo units alone that wouldn’t be dispatched within 48 hours. In a steel mill, it went for the number of batches that went back to oven during one month.

It is necessary to know the process and its local characteristics to find such precious measures.

At times we need to have a mirror-indicator to avoid an adverse side-effect a KPI could generate. Recently, concerning a technical service provider, they have been better controlled while measuring their schedule fulfillment when they arrive at a client's house (window), re-occurrence of calls (problem not solved) and, finally, productivity: number of weekly calls.

People are free to measure what they want, but if we focus on fewer vital indicators - well, there is no easier and more effective way of getting into a quality journey...

Written by Claus Jorge Süffert