Conversations from the Mirror42 Team

How does one come to a set of KPIs for their own specific company?

Setting KPIs is not easy and it is not always wise to simply copy what others have done and rely on best-practices.

In general, KPIs are related to the corporate strategy of a company. What is the goal of the company for this year? Is it to break-even, to grow marketshare?, to deliver new products to the market, to be the most customer friendly company in the market?

A company can be broken down in core processes and supporting processes. The core processes make the difference with the competition, it is what makes your company unique. The supporting processes are often not unique. This differs per industry. In the finance and telco industry, the IT processes are core processes and allow them to compete, think about better financial analysis applications or faster networks, however in most industries IT is not a core process and simply supporting.

For your supporting processes (HR, Finance, IT) it is often ok to standardize on best-practices. However for your core processes you should perhaps start with best-practices but think about your KPIs as an extension of your corporate strategy. What are your goals? How are you going to measure and quantify those goals. And if your goal is to make a big profit, then do not make the mistake to call profit an indicator. financial outcomes are not often indicators, but results. The indicators are “more sales meetings, bigger quotations, more leads, more partnerships, more projects. These indicators lead eventually to more profit. A KPI is a Key Performance Indicators, not a Key Performance Outcome.

You can use KPI Library to find best practices for your processes and perhaps your industry. Use this as a starting point, a source of inspiration to start your internal discussion with some examples. Dont expect the KPI Library to be your destination, but the start of your journey.

1. Measurement directs behaviour. Most employees consciously or unconsciously operate on the following assumption: “tell me how you measure me, and I will tell you how I will behave.”

2. Measurement makes performance visible. If it’s not being measured, it simply can’t be managed

3. Measurement focuses attention. When people are faced with so many competing demands on their time and resources, what is measured tends to get their attention – particularly when it is linked to reward systems.

4. Measurement clarifies expectations. Measures are a primary means by which management can communicate its expectations to employees, in a clear and unambiguous manner.

5. Measurement increases objectivity. Measurement is essential to “managing by fact” – otherwise you are left to lead with charm and personality.

6. Measurement improves execution. As former Allied Signal CEO and co-author of Execution Larry Bossidy has remarked “when I see companies that don’t execute, the chances are that they don’t measure.”

7. Measurement promotes consistency. Unmeasured systems tend to be highly variable systems, with all the negatives for quality that implies.

8. Measurement facilitates feedback. Feedback in the form of timely, relevant measures is the basic navigational device of any individual or organisation.

9. Measurement improves decision-making. One of the major causes of failure in decision-making is poor or non-existent use of data. One accurate measure can be worth a thousand opinions.

10. Management promotes understanding. Quality guru W. Edwards Deming thought that systematic process measurement led to the “profound knowledge” that was essential to top quality outcomes.

It is often said that KPIs should be SMART. But at KPI Library we believe KPIs should be SMARTER. Let us explain:

SMART stands for = Specific, Measurable, Attainable, Relevant, and Time-Bound

The key ingredients for ‘good’ definitions of Key Performance Indicators (KPI) and its goals. At KPI Library we believe you should add “Explainable” and “Relative” to these ingredients, making it SMARTER!

Explainable: to ensure KPIs are easy to understand and that you can communicate the KPI definition to all stakeholders involved and be assured that everybody understands what is being measured. To often KPIs are hard to understand by people and you face the risk that KPI definitions are misinterpreted.

Relative: to ensure that your KPI definitions (and goals) still apply when your business or volume grows. For example, you could take the number of open customer support calls (per period) as a KPI, but when your business gets more customers and the volume of support calls grows it is only natural that the number of open support calls grows. Therefore, the relative value against the number of reported service calls (e.g. % of open support calls) allows comparison of KPI values through time, even if the volume changes.

Therfore, not SMART but SMARTER.

Canaries in the Coal Mines: Miners always kept a canary with them in the coal mines because the birds were so much more sensitive to air quality than the miners. If the canary was alive and singing, the miners worked. If the canary was dead or dying, the miners knew to immediately evacuate the mining shaft.

This article explores the use of so-called “canary metrics”.