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Performance measurement is failing organizations worldwide, whether they are multinationals, government departments, or non-profit agencies. The measures that have been adopted were dreamed up without any linkage to the critical success factors of the organizations. Often these measures are monthly or quarterly. Management reviews them and says, “That was a good quarter” or “That was a bad month.”

Performance measures should help your organization align daily activities to the organization's strategic objectives. This book has been written to assist organization's with developing, implementing, and using winning key performance indicators (KPIs) – those performance measures that will make a profound difference.

Major Benefits of Getting KPIs to Work

The major benefits of performance measures can be grouped and discussed under these three headings:

1. The alignment and linking daily actions to the critical success factors of the organization.

2. Improving performance.

3. Creating wider ownership, empowerment, and fulfillment.

Alignment and Linking Daily Actions to the Critical Success Factors of the Organization

As Exhibit P.1 shows, even though an organization has a strategy, teams are often working in directions very different from the intended course. Performance measures should have been carefully developed from the organization's critical success factors. The critical success factors will help staff align their daily activities with the organization's critical success factors as shown in Exhibit P.2. This behavioral alignment is often the missing link between good and great organizations.

Exhibit P.1 Discord with Strategy

Exhibit P.2 Alignment with Strategy

In his book, Transforming Performance Measurement,1 Dean Spitzer points out that one of the most important roles of management is to communicate expectations to the workforce. He goes on to say people will do what management inspects (measures), not necessarily what management expects. Thus, we need to put in place the right measures. KPIs are the only things that truly link day-to-day performance in the workplace to the organization's critical success factors. Some people think that because the annual planning process comes from a medium-term view (called the development plan in Exhibit P.3), which in turn is linked to the strategic plan, strategy is linked to day-to-day activities. It looks good on paper but never works in practice. Strategy is broad and wide ranging, whereas annual-planning is a dysfunctional silo-based process.

Exhibit P.3 Linkage of KPIs to Strategic Objectives

Improving Performance

Performance measures can and should have a profound impact on performance.

Measurement:

● Tends to make things happen, it helps people see progress and motivates action.

● Increases visibility of a more balanced performance and focuses attention on what matters.

● Increases objectivity – Dean Spitzer2 points out that staff actually like measuring and even like being measured, but they do not like being judged subjectively.

● Improves your understanding, your decision making, and execution – Spitzer points out that that you will not be able to execute well, consistently without measurement. Measurement can improve your business intuition and significantly increase your “decision-making batting average.”

● Improves consistency of performance – Spitzer has stated that outstanding success is about consistent success over the long term.

● Facilitates feedback on how things are going, thereby providing early warning signals to management.

● Helps the organization become future ready by encouraging timely feedback, looking forward by measuring future events (e.g., a CEO should look weekly at the list of celebrations, or recognitions, scheduled for the next two weeks), encouraging innovation, abandonment of the broken, and supporting winning management habits such as recognition, training, and mentoring.

Creating Wider Ownership, Empowerment, and Fulfilment

Peter Drucker3 talked about leadership being very much like an orchestra conductor. Giving the general direction and the timing and leaving the execution to the experts (the players). Performance measures communicate what needs to be done and helps staff understand what is required. They enable leaders to give the general direction and let the staff make the daily decisions to ensure progress is made appropriately. This shift to training, and trusting staff to make the right calls is very much the Toyota way. Any incorrect decision is seen as a fault in training rather than with the individual. The delegation of authority to the front line is one of the main foundation stones of KPIs (see Chapter 7). This issue was discussed at great length in Peters and Waterman's In Search of Excellence.4

I have yet to meet a human being who desires failure or finds failure rewarding. Where measures are appropriately set, staff will be motivated to succeed.

Kaizen and this KPI Book

Kaizen states that innovation is a daily activity. This third edition of my KPI book is my contribution to continuous improvement. It includes the latest evolution of my thinking which, between editions is recorded in my KPI5 whitepapers.

This book is designed to help those project managers who are about to embark on a KPI project, as well as help senior management understand why they need to revisit their measures. The new content in this third edition is set out in Exhibit P.4.

Exhibit P.4 New Content in this Third Edition