Goals are not KPI's
Dwyer says another mistake of managers is to confuse KPI's with goals. The two are not the same.
If a company wants to get $200 million of sales, they assume it's a KPI it's not,'' Dwyer says.
The KPI's there should be about the sales process. They might be about how many new customers, how many customers visited gave a repeat visitation, how many of those visits ended up in a presentation and how many of those were closed as deals.
The KPI has to measure a process. You want the KPI linked to the corporate goal but it is not the goal itself.
He says some companies make the mistake of having KPI's that have nothing to do with corporate goals.
There are sales teams, for example, that have KPI's around whether they completed reports on time - something that will not sell a thing.
And every industry has a mix of formal KPI's that are written down (often as part of a job description) and informal KPI's that are not written down.
Like the incongruent KPI's pulling in different directions, they can leave employees confused and disenchanted.
You might have a call centre with a formal KPI of ensuring customers deliver on their promises to pay on time. The employee might spend more time on the phone helping the customer do that, offering deals and different ways of paying, so the average time on the phone goes up.
This might not be the published KPI but in call centre land, the time you spend on the phone is something people jump on. So the formal KPI is promises kept, the informal KPI is minutes per call. Guess which one affects behavior?
Queensland based performance measurement specialist Stacy Barr, who helps companies, not-for-profits and government agencies develop KPI's, says KPI's are not about measuring people.
KPI's are there to measure the performance of the organisation and KPI's are tools that people can use so that they can work not just in the business but also on the business, in other words improve the way the business works and improve its performance.
I help companies create KPI's that give them feedback really objectively and quickly about how various aspects of the organisation are performing.
Anything companies decide are strategically important usually ends up as the goals or objectives in the business plan and the KPI's track those.
Setting targets attached to KPI's
Some KPI's can stretch employees, and Barr says stretch KPI's need to be handled with care.
How high a target it is has got everything to do with the comfort of the company, how well it understands how they are currently performing and what sort of resources they are willing to throw at improving performance, she says.
You don't achieve a target by working hard. You achieve it by working differently and working differently means redesigning business processes. It should be aspirational but not a target that people become cynical about.
The idea is that the target should stretch you away from where you are and often you might miss the target but its power has pulled you away so far from where you were.
John Hogg, Managing Director Supply Today which provides consulting services says all stretch goals need to be economically viable.
You may set your inventory accuracy at 99.5% and that's your target but your goal is 100%,'' John says.
If your 100% is going to cost you more than 0.5% in controls because you need three extra people and another million dollars of machinery, you accept that 99.5% is economically viable and 100% is economically unviable.