MOHAMMED AL RIYAMI -
Traditionally KPIs are linked to Kaplan and Norton’s Balance Score Card (BSC), reflecting strategic initiatives and many would have come across them in their companies’ and performance contracts. According to Investopedia, “KPIs are a set of quantifiable measures that a company uses to gauge performance”.
Their importance in management and our daily business ventures is significant. This is reflected when you do a google search on KPI, you get 161 million hits and 27.9 million hits for BSC.
However, there is a tendency in most organisations to term KPI wrongly and in doing so making BSC less effective and hindering operations. This hinders businesses from moving from good to great. Indeed, a famous KPI consultant, David Parmenter, discussed the importance of having Critical Success Factors (CSFs) in developing and implementing winning KPIs.
The work is reinforced by Barnard Marr saying that current business KPIs are overused and misunderstood. Many indicators will give you a snapshot of what has happened in the past, and where they may be below par, we surely wouldn’t want to repeat them in our current and future state of business dealings.
KPI – Current and Future
At this juncture, we need to revitalise performance management and have the right indicator definitions by drilling to their core CSFs. As an example, British Airways used the punctuality of planes landing and taking off. The two axis views will encompass plane maintenance, plane boarding, internal processes, customer retention, reputation and innovation. It is not an exhaustive list but it hits the bottom line of profit and margin in turning the business from good to great, as poetically termed by Jim Collins.
It is possible to use the analogy of a person weighing oneself to distinguish between Performance Indicator (PI) and Result Indicator (RI). Therefore, a RI is the physical weight in kilos and body mass that has a specific measurement. At the same time, PI would be a person’s general physique and health. Diagram 1 shown above gives three main differences of the indicators as defined by Parmenter:
The two top boxes have measurement and reporting at a higher and less operative level. Albeit, KPIs will have to be defined over several in-house workshops where the full spectrum of staff experiences should be tapped for buy in and to establish the critical success factors. According to David Parmenter, KPIs should be non-financial, reported daily so action can be taken by the CEO if needed, to be simple so everyone can understand, driven by the team and have a major impact on the company.
Essentially, KPIs should ensure that staff give the right behavioural outcomes and sometimes should not be pegged to individual staff performance contracts.
When you put dollar signs you look at the sales and you are not going to the root cause of why the plane was delayed, which has a wider financial and reputational impact. A dashboard would be set up to report 10 KRIs, 80 RIs and 10 KPIs as an implementation start up.
KPI – Future and implementation
Implementation would embrace change management, where the BSC traditional elements of customer focus, financials, internal process, learning and growth to be reported in an effective dashboard. Additionally, other elements would include staff satisfaction, environment and local community. In a nutshell “knowing one’s critical success factor is seen as fundamental to knowing what to measure” as prescribed by David Parmenter. He also suggests several steps to follow in a successful KPI implementation. These steps are: senior management and CEO buy in, preferably in-house resource to manage KPIs, selling the change, finding company’s CSFs, and ascertaining fit for purpose measures that drive the business.
It is prudent to monitor market environment regularly and have innovative leadership style management when implementing the KPIs. As a safety net consider the paradigm movers and shakers like Peter Drucker, Jack Welch, Tom Peters and Waterman. To this end, Diagram 2 gives some of their key messages above:
[Mohammed al Riyami is an Oil & Gas industry professional with over 20 years of operational and management experience in a number of leading local and international energy firms in Oman and the wider Middle East.]
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