Winning KPIs

Every good leader knows what gets measured gets done.  But the great ones know how to select the right measures so that they can drive the business, and not be driven by it.  This month, we provide a walkthrough on selecting just the right metrics key to your success.

Top-Down Cascade

One of our favorite habits of the 7 Habits of Highly Effective People is the habit of beginning with the end in mind.  No surprise then that this habit plays a major role in our metric selection strategy.  When selecting metrics, it is essential to define what are the primary goals of the company.  Metrics are then selected to not only provide indication of performance, but also include complimentary leading metrics that can be readily acted upon and drive results.

To do so, a solid metrics strategy must include a cascade of measures from the top-most important company goals all the way down to the level where the work is being performed.  The top-tier metrics are considered lagging indicators, as they are measures of business outcomes following a month’s, quarter’s, or even a year’s worth of activity.  Any action on a lagging indicator would be considered reactive at best, as an effort to perform better the following reporting period.

Conversely, leading indicators may be considered as metrics that precede a lagging goal should have a direct cause-and-effect relationship the succeeding measure.  As metrics are cascaded from top-down, each level will be linked with a lead-lag combination.  The intent being that work being performed will have direct influence on the leading indicator, which will in turn correspond to a correlated influence on the subsequent lagging indicators.

Less is More

In pursuit of achieving Operational Excellence, the business leader may be temped to measure anything.  Afterall, if metrics can be used to drive results, more metrics means more results.  Right?  Not necessarily.

Consider the simplest automotive dashboards.  They typically have only a handful of indicators: Speedometer, Odometer, Tachometer, Gas Gage, and a Temperature Gage.  Certainly, more modern cars have much instrumentation.  But for years, the aforementioned gages provide the driver with everything necessary for operating the vehicle.  As each of these are key to the operational performance, these few critical measures are often called Key Performance Indicators, or commonly KPIs.

A Balanced Scorecard

It takes a lot to run a successful business, and most tend to be multifaceted.  Obviously, the goal of any for-profit company is to, well, earn a profit.  Thus, there is a financial component that must be considered.  Next, there are the internal processes that are required to design, make, and sell the product or service.  These processes must be designed with the customer in mind to ensure their satisfaction and ongoing loyalty.  And last but certainly not least, are the employees themselves.

A balanced scorecard will include a good mix of cascading KPIs to hit each facet of the business to ensure overall health, sustainability, and growth for the organization.  While each organization must consider the right combination of metrics to support their policy deployment and strategic objectives, there are a few guidelines that may be considered to help.

We recommend starting with the acronym SQDC, standing for Safety, Quality, Delivery, and Cost.  And we also recommend keeping those in that order and emphasize this as a priority within your organization.

Safety – Each employee deserves to go home in as good, if not better, condition from which they arrived.  Employees deserve a safe working environment and it is the leader’s job to ensure this is assured.

Quality – The product or service provided must meet customer and any applicable regulatory requirements.  Beginning with the end in mind once again, the entire product realization workstream begins and ends with the customer.  Quality is defined by the customer, and it is a top priority to ensure the product or service is right by the customer’s standards.

Delivery – Once we’ve ensured a safe work environment and that our product or service meets all customer requirements, then we move onto what most workers will consider “the numbers”  This is most commonly measured as the total output of the product or service.  However, measures in both volume and velocity should be considered since the customer not only demands a particular quantity, but within a particular schedule as well.

Cost – After all of that, THEN we consider our costs.  Cost Of Goods Sold, or COGS, are most often considered.  COGS typically include the cost of labor, materials, and overhead required during the normal operation of delivering your product or service.

Driving Performance

Once the wildly important goals at the highest level have been defined and the cascade of KPIs established all the way down to where the work is performed, two additional key elements must be implemented: develop a compelling scoreboard and create a cadence of accountability.

The compelling scoreboard is simply a visualization of the metric, designed in a way where the team can easily tell if they’re winning or losing.  Much like the scoreboard at any sporting event, teams can tell where they stand from 20-ft away.  Also like a sport scoreboard, the design should include a time element and invoke a call to action.  Especially at the leading indicator level, team members should be able to know exactly what activities they can do to influence the performance of their metrics.

The cadence of accountability is the regular venues where team members get together to review performance to goal and take actions to collaboratively drive performance.  Much like the cascading metric design, the accountability meetings should cascade as well, with an appropriate frequency for each level.

For example, C-suite executives may review top-level metrics on a quarterly basis.  In order to meet quarterly goals, Directors may meet monthly to review KPI trends and sponsor strategic improvement projects to drive their metrics.  In order to meet monthly goals, managers may meet weekly to review week-to-month performance and weekly trends and identify tactical changes to influence next week’s performance.  Supervisors in turn meet daily with cross functional support team to ensure adherence to daily goals, and production staff tracks their hourly performance to goals.

Thus, driving hourly performance delivers daily goals.  Meet your daily goals, hit your weekly goals.  On track for each week, and monthly goals are made.  Ultimately leading to hitting annual goals year after year, in alignment with the organization’s strategic goals and objectives.

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