KPIs & Cockpit Instrument Panels: The Proper Guiding Force Required To Reach Your Destination
Imagine entering the cockpit of a modern jet airplane and seeing only a single instrument there. How would you feel about boarding the plane after the following conversation with the pilot?
Q: I’m surprised to see you operating a plane with only a single instrument. What does it measure?
Q: That’s good. Airspeed certainly seems important. But what about altitude. Wouldn’t an altimeter be helpful?
We suspect you wouldn’t board the plane after this discussion. Even if the pilot did an exceptional job on air speed, you would be worried about colliding with tall mountains or running low on fuel. Clearly, such a conversation is a fantasy since no pilot would dream of guiding a complex vehicle like a jet airplane through crowded airspace.
This is an often cited story by many business strategists and other management prognosticators commonly attributed to Drs. David Norton and Robert Kaplan, pioneers of the Balanced Scorecard. It’s intended to reflect how critical the actual indicators are that we setup for not only pilots, but also for your entire workforce. These indicators - key performance indicators, that is - will serve as the guiding force behind the KPI owner's actions and decision-making
If improperly assigned, KPIs might be used like a drunk would use a light post, for support not illumination. If done correctly though KPIs can drive the right workforce actions supporting both strategic and operational objectives.
KPIs can be tied to achieving an operational goal, such as on-time customer shipments, inventory turns, or order-to-cash cycles not to mention procure-to-pay related processes. Yes, selecting the right KPIs by which to measure each employee is so important as they will drive their day to day actions.
Defining the Right KPI
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Of course, there’s going to be KPIs useful only to finance (Think Cost of Finance-to-Revenue, or even Financial Close-to-Report days) which will certainly be quite different than what a marketing department KPI like Validated Leads might be.
Well, I’ve seen as many as 40 KPIs for certain individuals. Is that a best practice? No. Absolutely not. There are levels of KPIs and, in this particular case, the person in question has their primary KPIs and their secondary KPIs. The answer to the 'how many' question is no less than 4 but no more than 12. If really pressed though it’s commonly believed that 6 KPIs per employee is the appropriate amount. If there’s too many though that many KPIs will probably spread the employee too thin and unfocused while too few KPIs might mean it's too narrowly defined and therefore some important objectives aren't being considered. Balance is the key.
The most important element to be aware of is the law of unintended consequences. You want these KPIs to drive the right behavior. Be careful what you measure because it will dictate employee actions, especially if you tie it to compensation (which you should). Conversely though, if you don’t tie these KPIs to compensation then don’t call me if they’re not properly focused. Invariably people do what they like doing if they’re not directed otherwise. They may be comfortable with some tasks versus others so they do what they like doing most.
A properly defined set of KPIs will succinctly highlight and even enforce (stick) the right employee actions while tying them to compensation (carrot) will help nudge these workers into truly following them too.
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