Key Performance Indicators, or KPIs, are essential in helping organizations better define and measure progress towards organizational goals and objectives. Once an organization has identified its specific objectives and key stakeholders in support of those objectives, it is better prepared to develop a systematic approach to measure progress towards those predetermined goals.
Key Performance Indicators, or KPIs, if implemented AND sustained correctly, allow us specific advantages including but not limited to the following:
- Create organizational clarity with regard to specific performance objectives in relation to the company vision and values;
- Effectively monitor progress towards goal with viable performance metrics;
- Conduct periodic analysis as a means to evaluate whether or not short-term objectives, or milestones, are being met in support of the primary performance target;
- Foster an environment of improved performance, employee motivation, and continuous improvement strategies;
- Ensure that the business is properly aligned with the agreed-upon objectives with the client, thereby ensuring improved collaboration and visibility over all areas of the business, including contractual compliance.
When implementing an effective KPI program, at a minimum it is crucial to consider the following:
- Measurements must be “quantifiable” – if you cannot measure specific data relative to key areas of your performance, it becomes difficult to both track and monitor progress towards goal, which impacts one’s ability to more effectively manage the business;
- Measurements must be agreed upon with both the client and primary stakeholders in advance of implementation – without question, this is one of the most critical steps in the process. Ensuring that one is fully aligned with the client in all areas of the business helps create a transparent and increasingly effective partnership, most especially when client objectives are met;
- Ensure complete alignment and understanding of the specific performance metrics within their organizations; employees must understand what is being measured, why it’s important, how it benefits them individually and as a department, and how best to contribute to the objective as a whole;
- Communicate progress to goal within the organization, and communicate frequently – repetition is key! - it is much easier as an employee and/or senior stakeholder to implement specific strategies and performance behaviors designed to contribute towards short-term milestones, most especially when they are continuously kept abreast of progress. The ability to work towards something achievable within a manageable or compressed timeframe tends to be more motivating and viewed by the employee as something they can achieve. According to Forrester Research, this contributes to employee satisfaction while increasing motivation toward meeting the specific objective(s);
- Incentivize Performance - be creative in implementing incentives to reward short-term contribution towards objectives designed to meet the ultimate company goal; add energy to the process by creating an enjoyable environment and backing it with specific incentives designed to both recognize and reward performance.
Key Performance Indicators must be viewed as Critical to Organizational Success
I have always believed that if everything is important, nothing is important! Clearly, we simply can’t measure everything!
In selecting the appropriate KPIs, it is very important that we limit them to those indicators that are essential to the organization reaching its full potential. At the same time, I believe that it is important to keep the message simple, with only a short list of ‘very specific’ and equally ‘measurable objectives’ – in doing so, you’ll foster an environment of organizational clarity, vision and direction of the business.
I would further argue anything more than on or about five key company objectives may serve to defeat the purpose, often adding unnecessary confusion within the company. Just as clear, less is undoubtedly more when it comes to developing key company objectives, supported by measurable KPIs.
When working through the objectives that are important to the business in how they support company vision, as well as the KPIs that support them, customization is key … Candidly, the volume of available KPIs are, well … excessive! Identify and ultimately deploy those KPIs that at a minimum, are:
- Customized to the Enterprise: for KPIs to add true value to your business, they must be customized around what is, in fact, unique to your business, market segment, and client base.
- Ability to Successfully Implement: simplicity if not a word to avoid … indeed, KPIs that are manageable, relatively easy to understand, measure and ultimately deploy, are key to the success of the initiative.
- Aligned with Company Objectives and Vision: anyone can implement a performance scorecard process that incorporates KPIs, however does that always translate into the desired performance outcomes? In short … no. Many KPIs fail as they are not tied to well-defined business objectives, which undoubtably are (or should be) tied to the vision statement of the business.
Through proper communication, frequent updates regarding progress to goal and continued positive reinforcement and recognition of efforts towards meeting specified goals, a business can most certainly achieve organizational success.
To be sure, it is important to move quickly, identify both positive and negative performance trends, and respond with the appropriate gap analysis and strategies necessary to improve performance. According to Jack Welsh, “An organization’s ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage.”
So What Do We Measure?
Which KPIs are best for a particular organization depends on several factors:
- Where is the organization today with overall performance?
- Where does the organization want to be tomorrow?
- Who receives the KPI data and what do they do with it?
- How are KPIs and the conclusions that are drawn from the KPIs communicated to others?
Indeed, this is without question one of the most essential areas to be addressed by any business, regardless of market segment. Candidly, not all clients are created equally – what is important to some, may not be important to others. Understandably, every product and/or service is measured differently. Yet, it is commonly understood that if one can’t measure their performance, they can’t effectively manage it, nor for that matter, improve it. It is the simple premise of measure, manage, improve!
The performance measurement process attempts to measure various aspects of performance to determine where improvement is needed. Performance measurement tools provide a window into how every element of your business is functioning in an effort to meet both internal and customer specific objectives. Essentially, key performance indicators, or performance measurements, fall into two specific categories, lagging or leading. Lagging measurements provide analysis of past performance whereas leading serves to both evaluate and define future performance.
The reality is that every business strives to deliver their products or services faster, smarter, cheaper! Organizations that meet such objectives typically leverage work tools to help them better facilitate the process. There are many valuable tools that can be acquired within the marketplace to help organizations better manage all areas of their business, from field operations to sales performance. At the same time, many business owners and managers can also create their own tools, customized to both their individual clients and business methodologies. It is my belief that a healthy organization will maintain a balance between acquired business tools, as well as tools developed internally through innovation and adaptation to the evolving demands of the client, which often are a direct reflection of market conditions.
Keep the following points in mind when selecting KPIs:
- Quantity does not equal quality.
- Measure the most important things, not everything.
- Ensure field and line management buy-in.
- Consider piloting metrics before rolling them out company-wide.
- Don’t let the cost of measuring exceed the value of the results.
So what specifically should we measure? I believe that the basic foundation of any measurement program should at a minimum consist of the following partial list of performance indicators:
Quality Performance
- Quality Audits
- Client surveys
- Trend Analysis
- Corrective Actions
- Gap Analysis
- Root Cause Analysis
- Performance against Target
- SWOT analysis
Cost Performance
- Budget Performance against Goal
- Benchmarking
- Value Additions
- Material/Supply cost
- Value Additions
- Cost Savings & Avoidance
- BCWS (Budgeted Cost for Work Schedule)
- Purchasing Improvements
Delivery Performance
- Performance against Schedule
- Cycle Time Analysis
- Work Order Completion Rates
- Productivity Assessments
Safety Performance
- Recordables
- Lost time
- Accidents
- Near Misses
- Safety Tracking
- Safety Audits
Clearly, there are a variety of equally important indicators that should be evaluated as part of the process including sustainability or green performance, employee performance, technology, etc.
In reality, not all clients are created equally. While some may emphasize overall safety performance as their primary indicator, others may emphasize stringent objectives tied into quality performance, often further validated through third-party audits.
It is my belief that above all else, the keyword is “customization.” Clearly, not all customers, markets, nor facility environments are created equal. Often, suppliers of both materials and/or services try to fit a square peg into a round hole in that they implement a generic quality program that lacks focus and specificity on specific aspects of contractual compliance, and what the client at the local level ultimately wants to achieve as part of the partnership.
According to an article noted within the International Facilities Management Association’s website, facilities managers, procurement professionals, and end–users suggest that one of their continued concerns with suppliers of various commodities is that they either lack a substantive performance management program, or when they do it is either far too generic, and/or far to under utilized.
For KPIs to be successful, there needs to be a system for tracking, communicating, and improving performance. If data are collected but aren’t communicated to the appropriate audience, efforts will not be successful. In an effort to increase accountability, use periodic reporting to highlight performance for leading and lagging indicators in a simple and highly visible manner. This helps foster an environment for increased accountability and awareness.
Finally, KPIs will evolve as the organization changes. Business owners and managers should be prepared to continuously evaluate their progress in tracking performance and the benefits of the KPIs. When necessary and appropriate, KPIs should be modified to reflect changing circumstances or drive further improvement.
September 18, 2011 at 2:20 pm
John,
Very well put together. I’m doing a training session at the Association for Healthcare Environment (AHE) next week on dashboards/KPIs. This fits in well with what I’m talking to my peers about.
Kent.
September 19, 2011 at 10:58 pm
Kent: thank you very much for your kind note, and I do hope that your session goes very well. I likewise hope that you’ll subscribe to this blog. – John
April 23, 2012 at 4:28 am
Dear John Garrett,
Greetings!
We would like to publish this article in Clean India Journal with due credits. The magazine is also available online (www.cleanindiajournal.com).
Kindly reply
Warm regards
Mohana M
Managing Editor
–
Clean India Journal
A magazine on Cleaning Technology & Hygiene Solutions
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April 23, 2012 at 8:30 am
Thank you for your inquiry. We are very pleased to hear of your interest. Yes, you may Publish with associated credits & links. Please forward copy once Published, so that we might circulate through our various media outlets, thereby providing added exposure to/for your Publication. Also, please kindly email me your direct contact information, as I would like to schedule time to speak by phone if possible.
Best Regards,
John Garrett President/CEO Facilities Management Advisors, LLC 888.656.0740 (toll) | 970.797.1682 (fax) http://www.fmadvisors.com (web) | jgarrett@fmadvisors.com (email) | @FMAdvisors (twitter)
August 30, 2012 at 9:09 pm
Mohana,
I wanted to follow-up to determine how this contribution was received within your India based Publication – I do hope it proved helpful.
JG
September 20, 2011 at 10:20 pm
John,
I have always wondered how one can develop the metrics for KPIs without limiting them to the job function. The article simplifies it through the 4 main performance criteria, linking to the vision and goals, etc.
I can now work on my business KPIs.
September 21, 2011 at 11:29 am
Bakari: Thank you very much for your feedback – I would agree that properly structuring the overall solution design with corresponding KPIs is critical at launch to ensure sustainable success. If you would like a free consultation regarding implementation strategies, please let me know. I can be reached toll-free at (888) 656.0740
September 21, 2011 at 10:02 am
John, very well written. Putting clarity to what a service provider is doing helps to create a formidable synergy between the provider and the client. KPIs (and relative dashboards), when mutually agreed upon and executed, provide a true view of ongoing operations and can help sustain a longer term relationship with the client. Great information throughout this article.
September 21, 2011 at 11:35 am
Hi Brian – I agree w/ you and would add that some organizations emphasize “relationship” with the client either as more important than delivery results, or in some cases, in place of them. I believe that a client relationship, if not backed by measurable results, isn’t much of a relationship … Combine both, & a company will drive improved performance, retention, loyalty, & growth.
September 22, 2011 at 7:30 am
John, Excellent work! I have been with fortune 500 companies for the past thirty years and one the worst mistakes made is to over analyze. I am glad you included this potential for failure.
September 22, 2011 at 12:12 pm
Terry:Thank you very much for your feedback… Much appreciated! I agree with you, and feel the simple premise of “less is more” certainly applies in most instances…
September 30, 2011 at 5:21 am
Hi John
I have read your interesting article and I am trying to work out how to apply the use of KPI in a European public procurement context.
As you may be aware of the European Union has dictated some quite rigid rules regarding public procurement and thereby limited the possibility of a constructive dialogue between parties during the procurement process.
A few questions came to mind when reading your article:
For starters would you say that implementing the use of KPI’s on for example a public health service department to start tracking their quality output to the end user could provide useful knowledge, before deciding to outsource the job?
My thought is that when you have knowledge about the quality being provided “inhouse” through KPI’s, you stand much stronger if/when you decide to outsource the work, because you can approach the market with demands of maintaining or even improving the KPI’s, (by incentives) instead of simply asking the potential suppliers to “do as you tell them to” through standard technical specifications.
Guiding the relation with an outsourcing partner through KPI’s makes alot of sense as it should mean that you both aim for the target that gives most value to the end user.
What is your take on this approach with regards to measuring KPI’s “inhouse” compared to KPI’s “outsourced”?
And how would you view the use of KPI’s as the basis for a procurement procedure with limited possibility to negotiate directly with potential suppliers?
/Jens Munk
Denmark
October 6, 2011 at 4:26 pm
Hello Jens: apologies for my late reply. Yes, I would agree and argue the importance of KPIs within the referenced in-house environment – firstly, establishing a performance baseline from which one can effectively measure/manage/improve ongoing performance, if constructed properly, will generate a positive outcome. In addition, having established such baselines, if one were to move towards outsourcing certain core functions, than the established baselines and historical trend data takes on an increased level of importance, especially if your intent is to ensure sustainable cost savings while agreeing to favorable terms with regard to performance outcomes within an outsourced model … Please email me direct if you would like to collaborate further jgarret@fmadvisors.com
October 21, 2011 at 6:17 pm
Very helpful I am sharing with my staff.
October 24, 2011 at 11:29 pm
Thanks Raffy: please contact me directly if you’d like to explore how best we might support your organizations strategic goals/objectives.
http://www.fmadvisors.com
888.656.0740
October 25, 2011 at 9:50 am
Dear John,
Wonderful article, have a plan goes to Jakarta ? making a seminar about Role of KPI’s inside company maybe or something…
October 27, 2011 at 11:50 am
Thank you for your comments Gery ~ please contact me directly if you’d like to explore how best we might support your organizations strategic goals/objectives.
http://www.fmadvisors.com
December 17, 2011 at 10:26 am
John,
Great article! I am interested with speaking with you further, as I am striving to improve my business.
Rob
December 26, 2011 at 5:15 pm
Rob: thank you for your feedback – please feel free to contact us at 888.656.0740, and/or email at info@fmadvisors.com
February 24, 2012 at 5:38 pm
#2 immediately stands out to me. We analyze KPIs using metrics that our clients do not necessarily grasp. We agree on them, but we are not always on the same page regarding their meaning. Perhaps we need to take things a step further by providing the resources (digital, real world consultation, or otherwise) to make sure everyone is on the same page..
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