In part one we noted the importance of clear and achievable transformation goals. The next step after identifying those goals is to test what they mean in terms of Key Performance Indicators (KPIs). If the aim is to become 1st in the industry, this will, for example, imply a certain level of revenue, cost-efficiency, customer satisfaction, and staff engagement. Calculating what goals mean in these specific quantifiable terms is critical, not only to measuring performance, but in relating vision to day-to-day activity and tasks. What gets measured gets done, and there is an obvious link here to reward, discussed later, if change is to take root and be successfully delivered. Frequently the KPI reporting process suffers from several dysfunctions. The first is too many KPIs. Everyone has an opinion on what matters most, and a vast list of possible measures needs to be distinguished from what is most important for transformation goals. Appropriateness to audience is key to managing this. The CEO does not need to know the number of impressions that division A’s website achieved last month, and does need to know if division B is missing its sales budget.
Kaplan and Norton’s work(1) on the balanced scorecard remains as relevant today as it was in 1992– perhaps even more so for digital business models which produce vast amounts of data for which it can feel difficult to see the big picture. This brings us to the second dysfunction often seen in KPIs i.e. a backward-facing approach. Past and current performance always needs to be compared to long and short-term transformation goals, so executives can see any gap between current performance and the goals. Discussions can then be focussed on what adjustments are necessary to close that gap, be it realignment of incentives, new skills and resources, or more efficient and effective processes. Without this KPI reporting is rather like playing bingo, and few people will know what good looks like, or what to change.
Finally, it’s important that KPI design is done collaboratively across the organisation with full leadership support. Without this different teams and divisions will produce their own analysis of their performance to prove their value. This may not be linked to an overall common goal and may even conflict with information produced by other parts of the organisation, making it difficult to steer and achieve excellent execution.