Teamwork Creates Clear, Accepted, Must-Have KPIs

Dec. 19, 2006

In manufacturing, as in life, decision makers must balance the must-haves and the nice-to-haves. “But no KPIs (key performance indicators) should be nice-to-haves,” declares Gary Cokins, manager of performance management solutions, worldwide marketing group, at SAS Institute Inc., a Cary, N.C., supplier of business intelligence software. “Those [nice-to-haves] are simply PIs (performance indicators)—and organizations have lots of them.”

Reserve KPIs for the vital few measures that are essential to supporting the change in direction a company’s executive team is setting, he insists. However, don’t exclusively focus on process-based KPIs, but also include project-based ones, Cokins suggests. Those project-based KPIs, which give, for example, the degree of project completion, “are arguably more critical to achieving the [company’s] strategy.”

The best process for defining, developing and selecting KPIs begins by involving managers and employee teams. Expose those staff members to the executive team’s strategic objectives that involve innovation, processes and customers, Cokins indicates. Then, allow these staff to determine which manageable projects or processes—at which the company can excel—will achieve the strategic objectives, he advises. “As a result of those preliminary steps, then have them (managers and employee teams) identify which few measures will indicate progress related to each project or process.”

Gain KPI buy-in

Involving these manager and employee teams is “superior to having executives mandate KPIs,” Cokins emphasizes. That’s because the bottom-up process gains employees’ buy-in. “But, more critically, it assures that the employees actually understand the executive team’s strategic intent,” he adds.

In this bottom-up process, deceit or games-playing has no place. “But the degree of ‘gaming’ or ‘honesty’ related to employees is directly governed by senior management’s attitude,” Cokins observes. “Are they (senior management) going to use scorecards, dashboards and KPIs for remedy or punishment? Is it a scorecard or report card? Do the employees work for bosses, to obey—or for coaches, to learn from?” he asks. That may sound dramatic, Cokins acknowledges, but he adds that “academic research has recognized that the type of management style differentiates success from failure in successfully adopting scorecards.”

Whatever the answers may be, KPIs should never be finalized, because executives must constantly adjust strategy as the environment changes, Cokins stresses. “Hence, KPIs should be continuously added or removed.” Once KPIs are stabilized, following the initial introduction of a scorecard, then who should see them? Here again, the senior executive team’s attitude toward openness governs, he states. “My belief is, ‘Open all measures to everyone,’ so there can be a collective answer to this question: ‘How are we doing on what is important?’ ”

Visualizing KPIs through dashboards—user interfaces resembling automobile dashboards and displaying information similarly—is one way to provide open access. But with them, the most effective way to present the right information to the right people at the right time is age-dependent, Cokins says. “A simple rule is if the person is under the age of 40, report the data visually in dials or as histograms. For those over 50, some like traditional tabular reporting.”

Regardless of how KPIs are presented, know what you’re doing and how you’re doing it in driving the enterprise. About using dashboards and what’s presented on them, Cokins observes, “There is too much attention being placed on how to monitor the dials, when the essence of performance management is about moving the dials!”

C. Kenna Amos, [email protected], is an Automation World Contributing Editor.