KEY PERFORMANCE INDICATORS (KPI)
How organizations can achieve breakthrough performance through the KPI tools
By Dr. Adalat Khan
The newly appointed 6th prime minister of Malaysia Dato’ Sri Najib Razak after taking office on 3rd April 2009 said “It must be a government with new approaches for new times – a government that places a priority on performance and result, because the people must come first.” Together with this vision of his new government he also introduced a system of Key Performance Indicators or KPI for Ministers in his cabinet that will be required to achieve the KPIs and report to him their performance. The first such reporting is due in November this year.
This is probably the first government in the world which is passionate about a performance management system which has helped many corporate entities achieve enormous goals and results.
KPI IMPLEMENTATION ROADMAP:
In order to succeed in KPI effort companies need to have a methodology. A methodology will provide a step by step road map guiding the organization in achieving its objectives. Like any other management system KPI projects need clear definitions of what is to be done, how, and by whom. The following step-wise methodology can guide/ help organizations and government agencies to successfully implement KPI programs. These are:
• Decision stage
The first step in KPI takes place when someone in the organisation recognises that the organisation needs to change for the better with the aim of achieving breakthrough business goals and metrics. It may be a Prime Minister, a chief executive, a manager or a clerk, but someone in the organisation must realize and say, “We need KPI achievement”. Such need however must be supported by the top management or Senior Management Team (SMT). Like any improvement and quality program the top management commitment is extremely important and it shall be the hallmark in this stage. Without the top management commitment the KPI project would not be able to take off the ground.
• Deployment stage
After realising the need to change and deciding on the implementation of KPI system in the organization, the next step which must take place is the deployment stage. During this stage an organisation mobilises resources to start work on the program and its implementation. It is at this stage that a small, well-trained team is formed to steer the project. Kaplan and Norton have commented that KPIs have been successfully designed by an individual, without large consultations, but that this was an exception rather than the rule. A project team of two to four people is recommended depending on the size of the organization.
Review of the present situation
Review of the current system is as important as the KPI which needs to be achieved. Many organizations make mistake and jump the gun by implementing and setting indicators without taking into account what is actually happening currently in the organization. The KPI team and steering committee must first review the present situation of the company and provide answers to the most crucial question-“What needs changes?”
• KPI Development Stage
This is perhaps the most important and critical step in the KPI program. It is at this phase that clear crystal and quantifiable Key Performance Indicators KPIs are set. As Peter Drucker has rightly stated that “What gets measured gets done” so the KPIs must be as measurable, clear, simple and actionable as possible.
• Reporting framework:
The reporting framework must accommodate the requirements of different levels in the organization and the reporting frequency that supports timely decision making and the achievement of the KPIs. Parmenter suggests that most KPIs should be reported each day (electronically) at 9 A.M. or, as in the case of late planes, constantly updated 24 hours a day, 7 days a week. He further states that in most organizations there will be another “top five” KPIs that will need to be reported at least weekly (excluding the daily KPIs already identified). One weekly measure that is important in most organizations is the reporting of late projects and late reports to the SMT. The remaining PIs can be reported monthly.
Commitment and implementation stage
KPI doesn’t happen in vacuum. People must buy the idea and commit their support. KPI implementation is always tough due to two major factors. It is tough because it involves fundamental changes and extra work which people by nature will resist. Another factor is its demanding nature, requiring people to work harder and taking on more responsibilities. To over-come these problems the KPI teams and steering committee should extensively communicate to all the stakeholders, particularly employees. Questions like what, why, how and when should be answered in detail so that the anxiety of the change is reduced.
• Performance Evaluation Stage
Though being a last stage in the KPI it is a critical stage. It may be mentioned here that in KPI we do not wait till the end of the month or a year to wait for evaluation. But this is the macro evaluation of people and macro KPIs achieved by the organization. It must be not forgotten that proper reward and celebration should take place if the organization has achieved its KPIs and in case of non-achievement causes are explored and a new strategy is developed towards the achievement of the KPIs.
KPI is a revolutionary performance management system which has helped many organizations breakthrough performance. The strength of this system lies in its tangibility and measurability where organizational members see both what needs achievement and what has been achieved.
Dr Adalat Khan is the president of Mina Resources Sdn Bhd who can be contacted via email. email@example.com