Derek Hendrikz
Do KPI’s actually work?
If you do a google search on whether KPI-based systems work or not, the amount of ‘against’ arguments definitely outweigh the ‘for’ arguments. More alarming is that most arguments in favour of KPI-based systems are made by companies who sell these systems.
Over the past 20 years I have touched base with more than 170 companies, and could not really find users of KPI-based PMS’s (performance management systems) who actually has confidence in its application. In fact, in most cases it’s seen as a necessary evil. Mostly it is strategic leaders who, after a strategy formulation session, demands that strategy must be translated to action. Of course, nobody in the company knows how to do this, and then balanced scorecard or other systems are implemented to link strategy to human performance. In the process a huge consulting and training industry is stimulated and, in my mind, this produces very little results.
Now, the problem does not lie with having Key Performance Indicators (KPI’s). The term basically says that there are indicators of performance that is key and that we should focus on such. Nothing wrong with that! Thus we start looking for the problem with how we define KPI’s or what their characteristics should be. Still, after all the research and money spent, it ends up being something that everyone within the organisation hates…
Due to my intensive involvement with strategy development; I have been compelled to grapple with this problem for many years now. And it finally seems that I have gained some comprehension to this conundrum. You see the problem never is, nor ever was with the concept, but rather with the belief construct or philosophy that drives the concept. There is absolutely nothing wrong with having performance indicators. The problem is your perception of how to locate those indicators.
All performance management systems that I have ever viewed has a basic process. This process entails creating a strategy, defining a structure, creating job profiles for such structure, developing KPA’s (key performance areas) that link strategic objectives with job profiles, and then creating key performance indicators that assigns specific performance to each job profile.
Although the above methodology seems sound; it has a critical error or rather a fundamental flaw, which is that we attempt to manage the performance of people without understanding the process within which such person must perform. Reality is that no person can perform outside a process. Therefor all we need to do is manage the performance of a process and assign people to tasks within such process. Where an employee is linked to the inputs, outputs and behaviour of a process his or her performance is already defined.
Why on earth would you want a job description if you have a well-defined process, or KPI’s where processes have clearly defined inputs, outputs and behaviour? In fact, even a structure is no more than the mapping out of process relationships; a budget no more than an understanding of the shared fixed cost between processes and the variable cost within a process; a managerial position no more than authority over parent and child processes and asset management no more than understanding which non-human resources are consumed within a process. In effect an organisation is no more than the defining of process relationships and targets are no more than the quantification of process results.
Are most companies barking up the wrong tree? Yes they are! Is this costing a lot of money? Absolutely!
It is time to realise that managerial models have not evolved at the same pace as with most other disciplines. In reality, we are so far behind that it’s too late for evolution. We now need a revolution. In this light I advocate that we should forget about restructuring, reengineering, KPI’s, KPA’s, Job grading systems, structural development and all the other nonsense that goes with this. It’s a trap! We have created experts in HR, Supply Chain, Strategy, Finance, Governance and many other areas that specialise in the solving of problem complexity; but at the cost of failing to understand context complexity.
In conclusion, all the answers you need for absolutely anything within you organisation is captured within the processes that construct your organisation. The intelligence is there - it creates the genetic structure of your organisation. All you have to do is define it, quantify it and measure it. Everything else is simply a result of calculating and presenting the variables defined within process families… In my Strategic Leadership Master Class we thoroughly work with the art and science of understanding, defining, quantifying and practically applying organisational processes…
© 01 June 2015
Strategic Leadership and Strategy Development Specialist
Copyright
© 2015 Derek Hendrikz Consulting
Comments
I seem to agree with Derek somewhat on the need to use processes to define work. The process is a more practical way of ensuring that the job is properly defined and measured. The process also introduces objectivity in the assessment of whether the job was performed well or not. The idea of KIPs is not bad but its implementaion is more difficult to measure. When a process is well defined the employee can clearly see if he or she is not performing well. The supervisor can also introduse remedial measures when the need arises.
Dear Judith, thank you for your reply... I agree fully. In my experience KPI-based systems are extremely subjective and often leads to error and unhappiness...
I am of the view that KPIs cannot be entirely done away with as they serve to provide guiding rails towards the achievement of goals.
Structures and processes may exists but achievement of the expected goals needs to be checked and those are what the KPIs serve to provide
" In conclusion, all the answers you need for absolutely anything within your organisation is captured within the processes that construct your organisation. The intelligence is there - it creates the genetic structure of your organisation. All you have to do is define it, quantify it and measure it"
This is a statement of defining KPI
I would therefore not be and advocate of those against KPIs
Thank you
Hi Anthony - please see my comments to Muctaru and Stephen... My statement quoted above does indeed constitute a performance indicator and as mentioned I have no problem with the concept of a key performance indicator. Reality is that the systems that drive such are extremely subjective and impractical. To properly measure work you need to measure inputs (which differ between project-based work and cyclic process-based work), outputs and behavioral indicators. The math and approach to measuring all these are extremely different, therefore to give them all the same name such as KPI will lead to immense practical confusion or either to the implementation of a very simplistic and subjective system...
Have to say I kind of like and agree with Stephen's clarification of the difference between a job description and process.
Perhaps more from Derek would convince me that process is all that may be needed.
Hi Mutaru - good to see you here...
Please see my comments to Stephen regarding your comments. It boils down to the fact that where a process is properly defined, you need nothing else. But it will be extremely hard to understand this if your understanding to what a process is, is limited. Some people see a process as a list of activities, others see it as connecting boxes with arrows and a very few advanced practitioners see it as the genetic construct or DNA of any organisation. The questions what, where, why, when, who and how are asked a number of times in many different ways from a myriad of angles... It sometimes takes me days to fully unpack one process. But once this is done, the magic can happen. Not only performance indicators but everything else such as budgets, asset consumption, strategy execution, etc, etc, etc can be extracted from here. The only work is to populate a process with intelligence, everything else is math...
Muctaru, please read my blog entry on mission vs. vision
http://www.derekhendrikz.com/index.php/resource-centre/easyblog/entry/difference-between-vision-and-mission
Yes KPIs work.
The world we live in is a problem solving enterprise and so living is all about solving problems(hunger, thirst, disease and illness, insecurity, boredom etc)
looking at an institution which has its mission backed by law and processes established to ensure that the Mission is being done, every process or stage of process should be assigned to an individual or team who is supposed to go by the existing processes.
the difference between a process and a job description is this: a process identifies what should be done in a sequential order and a job description points to who does what within the process.
these job descriptions are derived from the process and these descriptions happen to be the indicators(KPI) which tells a a manager if the activities of a process are being done. (once a well defined process is followed success is assured)
if job descriptions are not provided, then a security guard with a driving licence will drive a company vehicle out leaving a driver behind who cant perform the job of a security man.
i think KPI can be used to can tell if a team or individual are up to the task or not for proper checks to be instituted. (either working on the process or teams carrying out the process)
i wonder how KPI can be eliminated from strategic performance management systems.
Dear Stephen, we agree on a number of issues here. All work is done through a process. If this work is repeated we call it a cyclic process and if it is once-off work we call it a project. If we agree that all work emanate from within a process then it makes sense that a job description is simply a description of the process activities that you are responsible for. KPI's can never be sufficient to analyse the work of a process since the inputs, outputs and human behavior that enable this process have different mathematics and different performance assessment approaches. For instance project inputs are measured by assessing the percentage of completion on the date when specific activities have been scheduled to be measured. In other words if you have a milestone that is due by 1 April, I will be able to assess your performance to the point where I can determine that your activity at the said date is completed to the point of 76.5%. We call this Project Input Indicators. Cyclic process outputs on the other hand have to be measured in terms of your ability to repeat and activity to satisfaction of pre-determined quality rules or procedures. We call this cyclic process input indicators. This is a whole different math. Here we will observe a process activity and rate the assessed person between a scale of poor to excellent, where after we will do a second rating to determine the % of input efficiency. Then there are output indicators. Unlike input indicators output indicators can be exceeded, in other words they are targets. Why measure both input and output indicators? Because first stimulates implicit intelligence and the latter drives performance. Then there is behavioral indicators. These are perceptually measured; usually through a 360 degree tool where the perception of various role colleagues determine the score. Now, to call all these indicators KPI's has a simple practical problem, which is how will you know what you are measuring and how will you know which math to apply??? To say that my scientific approach is to complicated is like saying that one refuses to drive a car because it is too difficult, and then sticking to a horse cart. KPI's are not only impractical, they are primitive. With software and technology one can apply a much more scientific approach to the management of human performance.
Have you bothered to find out the originator of KPI in performance management systems?
@Henry... Nobody will know for sure where and how KPI systems originated, but it is most probably during the industrial revolution when the need for efficiency improvement and heightened employee control emerged. This most probably evolved over time to the current day where the use of Key Performance Indicators (KPIs) became synonym to performance measurement and management.