How Key Performance Indicators Impact Your Business

If you are measuring too much it can be harmful to your health… or at least the health of your business. Here we are in January 2019. Quite probably at a moment of inflection in the business environment. Is your system of Key Performance Indicators (KPIs) helping you thrive during this turn, or is it an administrivial ball and chain? During a recent meeting with a client she said “I’m really not into all that book-of-the week crap. We need to focus on our KPIs and deliver on them. That’s all there is to it.” I agree with her. However, there is an important difference between flavor of the week and true organizational learning. We all need to advance the ball by developing the capabilities of our organizations. Let’s peel that onion using an example of how a minor tweak in thinking can have a dramatic impact on performance.

Take for example KPIs. Who in their right mind would suggest you can operate a business without measuring it? (Sorry if you’re not measuring your business, read on this is even more important for you.) That’s what KPIs are all about right? We sit down in each department and ask ourselves the question; “What should the KPIs for this department be?” Then we begin listing things the department does and how fast they should be done, or how cheap, or how well. In shipping we might say; “let’s measure how many packages are shipped.” That will tell us how productive the shipping associate is. Immediately though, the question; “on what kind of day” arises. If it’s in busy season the number of shipments is very different than if we are in a slack part of the season. We could set the goal in terms of a percentage… what percentage of the shipments that were queued up were shipped and this gets closer to the point. However, looking at the question; “What should we measure?” misses the overarching point which is the question; “Why are we doing this?”

If we look at this problem from the top down and begin with fundamental questions like; “why are we in business?” and “why do our customers buy from us?”, we can see a simpler, more strategic way to ask the question about shipping. If we ask the question; “what do our customers need/want?” then the question about how to measure shipping quickly resolves itself into our customers’ terms. The following example illustrates:

Objective: satisfy customer timeliness needs as measured by these key results:

1. Stock parts are shipped 80% the day the order is received and 100% within 24 hours;

2. Manufactured parts are shipped 100% within 2 weeks of order receipt plus material lead time;

3. Purchased parts are shipped 100% within 24 hours of order receipt plus vendor lead times; and

4. Customer emergency repair parts are 100% expedited to meet customer requirements no matter how stringent they are subject to what is physically possible (customer picks up cost of this).

Superfluous KPIs are avoided when we start top-down like this. This is the real value. We stop measuring, and expending effort managing to, unnecessary metrics and focus completely on our objectives and the key results that demonstrate whether we are meeting our objectives or not. Activity that does not support an objective is simply discontinued. While it may seem like flavor of the week to call KPIs, rocks and metrics “OKRs”, the process of setting Objectives from the top down and then determining the Key Results that prove out those Objectives is materially different and, done properly, resists complicating the business just by measuring it.

To begin using OKRs:

1. Establish organization objectives from the top down beginning with the mission and working down.

2. For each objective set Key Results that will prove we met the objective.

3. Meet monthly or as appropriate to monitor OKRs and make adjustments.

4. Adjust the OKRs to be more effective at the end of each year, or sooner if driven by an external force.

If you would like to learn more, here’s the link to purchase John Doer’s book; Measure What Matters.