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Key performance indicators (KPIs) are those indicators that focus on the aspects of organizational performance that are the most critical for the current and future success of the organization. KPIs are rarely new to the organization. Either they have not been recognized or they were gathering dust somewhere unknown to the current management team. KPIs can be illustrated by two examples.

Example: An Airline KPI

My favorite KPI story is about a Senior British Airways Official who set about turning British Airways (BA) around in the 1980s by reportedly concentrating on one KPI.

The senior BA official employed some consultants to investigate and report on the key measures he should concentrate on to turn around the ailing airline. They came back and told the senior BA official that he needed to focus on one critical success factor (CSF), the timely arrival and departure of airplanes. The consultants must have gone through a sifting process sorting out the success factors which were critical from those that were less important. Ascertaining the five to eight CSFs is a vital step in any KPI exercise, and one seldom performed. In Exhibit 1.1 the CSFs are shown as the larger circles in the diagram.

Exhibit 1.1 The Importance of Knowing Your Critical Success Factors

The senior BA official was, however, not impressed as everybody in the industry knows the importance of timely planes. However, the consultants then pointed out that this is where the KPIs lay and they proposed that he focus on a late plane KPI.

He was notified, wherever he was in the world, if a BA plane was delayed over a certain time. The BA airport manager at the relevant airport knew that if a plane was delayed beyond a certain “threshold,” they would receive a personal call from the senior BA official (let's call him Sam). I imagine the conversation going like this:

“Pat, it's Sam on the phone. I am ringing up about BA135 that left Kennedy Airport over two and a quarter hours late, what happened?”

Pat replies, “The system will tell you that the plane was late leaving Hawaii. In fact it was one and three quarters hours late and everything was in order at our end except we lost an elderly passenger in duty-free shopping. We had to offload their bags and, as you can see, we did it in record time, only half an hour!”

“Pat, how long have you worked for British Airways?”

Pat, realizing this conversation was not going well, responded, “About 30 years, Sam.”

“In fact, Pat, it is 32. In 32 years of experience with us you are telling me that with six hours of advance notice that the plane was already late you, and your team, could do nothing to bring it forward, and instead you added half an hour. Quite frankly Pat, I am disappointed as you and your team are better than this!”

Pat and many others employed by the airline had the “not invented by us” syndrome. A late plane created by another BA team was their problem not ours. Pat gathered the troops the next day and undertook many proactive steps to ensure they recaptured the lost time, no matter who had created the problem. Actions such as:

● Doubling up the cleaning crew, even though there was an additional external cost to this.

● Communicating to the refueling team which planes were a priority.

● Providing the external caterers with late plane updates so they could better manage re-equipping the late plane.

● Staff on the check-in counters asked to watch out for at-risk customers and chaperone them to the gate.

● Not allowing the business class passenger to check in late, yet again. This time saying, “Sorry Mr. Carruthers, we will need to reschedule you as you are too late to risk your bags missing this plane. It is on a tight schedule. I am sure you are aware that the deadline for boarding passed over 30 minutes ago.”

The BA manager at the relevant airport knew that if a plane was delayed beyond a certain threshold, they would receive a personal call from Sam. It was not long before BA planes had a reputation for leaving on time.

The late-planes KPI worked because it was linked to most of the critical success factors for the airline. It linked to the “delivery in full and on time” critical success factor, namely the “timely arrival and departure of airplanes,” it linked to the “increase repeat business from key customers” critical success factor, and so on.

It is interesting that Ryanair, an Irish low-cost airline, has a sole focus on timeliness of planes. They know that is where they make money, often getting an extra European flight each day out of a plane due to their swift turnaround and their uncompromising stand against late check-in. They simply do not allow customers to get in the way of their tight schedules.

The late-planes KPI affected many aspects of the business. Late planes:

1. Increased cost in many ways, including additional airport surcharges and the cost of accommodating passengers overnight as a result of planes having a delayed departure due to late night noise restrictions.

2. Increased customer dissatisfaction leading to passengers trying other airlines and changing over to their loyalty programmes.

3. Alienated potential future customers as those relatives, friends or work colleagues inconvenienced by the late arrival of the passenger avoided future flights with the airline.

4. Had a negative impact on staff development as they learned to replicate the bad habits that created late planes.

5. Adversely affected supplier relationships and servicing schedules, resulting in poor service quality.

6. Increased employee dissatisfaction, as they were constantly fire fighting and dealing with frustrated customers.

Example: A Distribution Company KPI

A distribution company's chief executive officer (CEO) realized that a critical success factor for the business was for trucks to leave as close to capacity as possible. A large truck, capable of carrying more than 40 tons, was being sent out with small loads because dispatch managers were focusing on delivering every item on time to customers.

Each day by 9 a.m. the CEO received a report of those trucks that had been sent out with an inadequate load the previous day. The CEO called the dispatch manager and asked whether any action had taken place to see if the customer could have accepted the delivery on a different date that would have enabled better utilization of the trucks. In most cases, the customer could have received it earlier or later, fitting in with a past or future truck going in that direction. The impact on profitability was significant.

In a scenario similar to the airline example, staff members did their utmost to avoid a career-limiting phone call from the CEO.

(Both these examples are provided in greater detail in my webcast, “Introduction to Winning KPIs,” which can be accessed via www.davidparmenter.com.)