Sense and Non-Sense of KPI's

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Given my earlier blogs on the role of the Corporate Innovation and Information Officer CIO, I was asked how this would impact the Key Performance Indicators (KPI's) an organization should set to measure the performance of this key executive. To answer this, first we should address the sense and non-sense of KPI's.

Literature shows that organizations managed through a good set of KPI's perform better than those without them. But the words managed and good are of essence here. Most KPI's are only used to determine the variable bonus component of individual executives, but seldom as an integrated set of corporate steering instruments.
Furthermore KPI's are often to "tailor made" for an individual, and in such defer from the underlying business indicators. In general I'm a fan of less and group focused KPI's. A typical example I could find for an ICT manager: Percentage of incidents not handled within the Service Level Agreement (SLA) set duration. Although this KPI as such seems logical, one should ask what this KPI means to the organization: If only one incident will stop delivery of orders for a half day this outweighs the dozen minimal interrupt incidents that are counted for 99% towards the successful achieving of a KPI.

My alternative KPI would at least differentiate on the type of incidents into the level in which they influence total revenue and profit targets set by the organization.
Another example of non-instrumental KPI's are those which are cost driven in such a way that they can cause more damage than their savings. A good example is to optimize the throughput per service desk member to a certain number of calls/incidents per person. In my opinion this results too often in non-service: the customer or user going through call centers where "cheap" resources cause loss of business time, energy and increased frustration. Being all subject to call centers every once a while, you probably understand this!

Customer satisfaction is the logical resulting trend in KPI's: Measure what your customer thinks, and when you move from an average 7.6 to a 7.7 you will make your KPI! I admit a bit cynical, but the bombardment of customer surveys you get via the web will not help to get your problem solved.

I'm not advocating abandoning KPI's at all, but would make them simpler and connected. My preference is for KPI's based upon the Key Business Requirements (KBR's): Revenue, profit, customer addition and retention, and market share. The argument that individuals lower in the hierarchy cannot contribute are in my opinion not correct: When the management says "growth" it might happen; When the work floor feels growth, it will happen.
The 1:1 alignment of the KPI's with the KBR's is essential and can be drilled down in scope (e.g., department or customer group) and impact (percentage of on target earnings) for an individual. Try to bring the current KBR's and KPI's of your organization into a work-breakdown structure, and see how they match (or not).

Is there no room for the typical traditional ICT KPI's like percentage uptime, and time between outages? Yes, but on a lower operational level in an organization, supporting the more business focused KPI's of the ICT management as described in the above.

A final remark on the impact of making your KPI: On managerial level it only makes sense if the KPI's make up for a large percentage of the On Target Earnings (OTE), I would advocate up till 50%. On the work floor I would still go for 10%. When measured and paid on short intervals, I found them well working. A vague, nice-and-easy to meet KPI for an extra 2% will not change much in an organization's performance.

In summary I think making KPI's more measurable in business terms is more important than creating more detailed KPI's. In a next blog I will zoom in on the KPI's specific for the CIO.

This blog is part of a series on Key Performance Indicators (KPI's):

  1. Sense and Non-Sense of KPI's (this blog)
  2. KPI's For a Corporate Information Officer (CIO)
  3. Can You Provide Me with some KPI's to Measure Innovation?
  4. New! The Time Variant Business Balanced Score Card (BBSC)
  5. From KPI's To an Actionable Dashboard Implementation
  6. MyRealTimePerformance: Your Real-Time Personalized Dashboard with Actionable Items!
  7. How To Turn Business Intelligence (BI) Into a Management Instrument With a Real Return On Investment (ROI)

Please share with me your thoughts on this.

Results2Match has a strong vision on successful Key Performance Indicator strategies and result driven implementations.

This blog is written by Hans van Nes. Hans is a very experienced interim manager and management consultant. You can contact Hans through his Results2Match email address.

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