Sticking with the people theme from our last Insights post, we've decided to go a bit "micro" this time around and do a bit of digging into the world of Key Performance Indicators (KPIs).
They're common questions: What's a good KPI? How can KPIs be improved? How do I write a KPI?
And they're questions that make us really interested in KPIs since they play a crucial role in creating and maintaining a sustainable rate of business growth. That's because they're the output from the last step in the sustainable growth planning process.
To highlight what we mean, here's what that process looks like:
This post is all about providing you with some practical tips so that KPIs in your business fulfil the function they're meant to: help employees understand what's expected of them and to help them track their progress toward achieving their goals and objecitves.
First, a little history
For many, the concept of KPIs probably feels like a relatively recent development.
But that's far from reality. While nobody seems to be able to really say with certainty when KPIs were "invented" there's general agreement that the first recognised use of something vaguely similar was during the 3rd century. Apparently, the emperors of the Wei Dynasty (AD 221 - 265) used a form of KPIs to rate the performance of family members. Which also would have been useful when the kids were younger "earning" pocket money...
The term "Key Performance Indicator" only became firmly entrenched in business during the 1990s - which was a time when "management by fad" seemed to be all the rage. All manner of slick management tools were created during this time, most of which have since fallen out of favour.
KPIs though, have stood the test of time.
For good reason. Used intelligently, well crafted KPIs can most definitely help manage the performance of employees and the businesses within which they work.
"Intelligently" is the key word here.
What do employees say about KPIs?
Here's some things we often hear from employees about KPIs:
“My KPIs were just handed to me. There wasn’t any discussion about them”.
“They don’t really seem to fit with the job I’m actually doing. There’s no link to what I think I’m expected to achieve”.
“My KPIs haven’t changed for maybe two years. But my job has. A lot.”
"I don't see any link between my KPIs and where my boss says the business is headed."
If these sound a little familiar, you’re in good company - our experience suggests a high proportion of employees in Australian businesses are less than convinced their KPIs are particularly meaningful. Which does nothing for employee engagement.
In an ideal world, KPIs are a way to track and measure how the business is performing in terms of achieving key priorities. Time is spent on KPIs because we think it’s going to guide the business and the people in it towards desired outcomes.
So it's important to give them your best shot...
Tips for more meaningful KPIs
Here’s how you can create KPIs that your employees will find not only useful but that will enhance engagement across the team and, ultimately, improve productivity in your business.
And those are important pre-requisites if you want to achieve a sustainable rate of growth.
1. Co-creation
This is one of the basics. In fact, it’s so important that even if you get everything else right, this one can let down the whole show.
By “co-creation” we of course mean making sure
your employees have meaningful input to the KPIs they'll be held accountable for.
There’s a couple of ways to get this wrong (apart from not having KPIs at all).
The first is to simply write a whole bunch of KPIs for every role in the business then hand them to the employee concerned with a “there you go…let’s talk at the end of the year to see how things went”.
The second is to sit with each team member, jointly agree some draft KPIs (a good start) then after that conversation, present them with your own version of what you think you agreed which actually bears little or no resemblance to your team member’s view on the matter (a bad ending).
Engaged employees as a result of either of those two approaches? We think probably not….
KPIs that work as nature intended are the result of discussion, negotiation, expectation management and maybe some compromise from both sides leading to agreement on what those KPIs ought to be.
So, tip one?
While there’ll always be some non-negotiables, make KPI setting a truly collaborative exercise.
2. Give them context (part one)
It’s no secret that the most engaged employees in any business are those who have a sense that their role contributes to a bigger picture and who understand where the business is heading and why - in other words, they understand both the purpose and strategy of the business.
And engaged employees are more likely to deliver “discretionary effort” over and above what their role and KPIs call for.
That understanding doesn’t happen on its own. In businesses where employees “get” purpose and strategy and understand how their role contributes, there’s a concerted and consistent effort by leaders to communicate, communicate and communicate some more.
Tip two then…
Make sure employees “get” the business purpose and strategic context to which their KPIs relate. Ensure communications in the business help bring purpose and strategy to life in the minds of your team. And make sure your leaders know they're absolutely accountable for implementing that plan.
3. Give them context (part two)
Wherever you see the words "purpose" and “strategy” above, substitute “business and action plans”.
Because people in your teams need to understand all three. Where purpose and strategy provide the longer term, big picture context, business and action plans give team members the shorter term perspective - how their day-to-day activity contributes to the success of the business.
By ensuring employees fully understand "context", you make KPIs more than just a task list that would be no more engaging than checking off your shopping list.
So tip three is simply tip two all over again, but focused on business plans.
4. Focus on outcomes
This might seem obvious but it’s amazing how often we see KPIs that only vaguely relate to the result required from them.
As a simple example, think about a KPI focused on customer service. Most businesses want to keep their customers happy, naturally. So to do that, a business might load up its employees with KPIs requiring them to phone their customers once a month to check in.
Which might be fine. But maybe not.
Instead, what if the business assessed the performance of team members with customer service responsibilities using customer engagement as the measure?
The point is that the number of phone calls is an input. Some customers might love them, but others may find them intrusive. Without measuring engagement you’ll never know, so a KPI focussing on those call volumes might not be creating the outcomes needed.
Focusing on outcomes rather than inputs also gives employees a degree of autonomy. By clearly agreeing expectations, you free up your team members to think for themselves which often brings process (and other) improvements into your business. After all, it’s the people doing a particular job who are closest to it and therefore likely to come up with a “better mousetrap”.
Tip four then? Frame KPIs around what a successful result looks like…not activity that might or might not lead to a desired outcome.
5. Make KPIs controllable
There’s nothing worse than being held accountable for
outcomes you can’t control.
Yet this is a concept frequently ignored when it comes to drawing up KPIs. The warning sign is when words like “contribute to…” and “influence…” which aren’t indicative of real control over any outcome whatsoever. They also suggest real difficulty in measuring success.
Tip five: make sure you examine every KPI you agree with your team member to also ensure and agree he or she can control the outcome (barring totally unforeseen circumstances). Avoid ambiguity by using wording that points to a specific result that needs to be achieved.
6. Make them reasonable
This one’s simple….
Don’t make KPIs so “stretch” as to be all but impossible to achieve and therefore most likely completely demotivating.
This is where co-creation is critical. There’s no doubt there’ll be an initial difference of opinion as to what constitutes “reasonable” so be prepared for a bit of robust discussion. Be prepared also to compromise. Again, recognise and agree there are some non-negotiables but be prepared for some give and take.
So that’s tip six, pure and simple - be reasonable.
7. Include KPIs that relate to professional development
Give your team the opportunity (but not necessarily an obligation) to identify professional development opportunities that will benefit both them and the business.
These could relate to undertaking additional study or short courses to enhance existing skills or acquire new ones. They could also be as simple as formalising opportunities to work in other areas of the business to build those skills and improve understanding of what goes on across the business.
Don’t, though, force development on individuals who don’t, for whatever reason, wish to pursue it either for the time being, or ever. There’s often good reasons why this is the case.
Forcing the issue will create resentment rather than goodwill. Development opportunities are always best presented to those who really want to pursue them.
Which is tip seven - make sure those who want to develop themselves are given the opportunity. Building in a development KPI makes development a two-way street - it means the individual is being measured on undertaking appropriate and relevant development and it puts something of an obligation on the business to help facilitate that development (as it should).
8. Include KPIs that create collaboration
Many initiatives a business wants and needs to see successful rely on team members from cross-functional areas to work together to make it happen. If you know this to be the case, don’t make it difficult for those involved…don’t leave it to them to work it out for themselves. Instead, be specific. “Work with a nominated representative from XYZ Department to complete Project Snowcone by end of June” leaves no doubt that there’s an expectation of collaboration.
Tip eight: collaboration will only sometimes work if left to spontaneity. Other times it needs to be driven. Don’t leave it to chance.
A final word on context
Those with leadership responsibilities frequently point to agreeing KPIs and managing performance as particularly stressful elements of their role. When quizzed about that, many leaders say it's because employees fail to see the relevance of the process beyond facilitating a "rating" at the end of the performance management year. Which itself is all about providing a basis for any pay increases and/or incentive payments.
That can be avoided (or at least minimised) by positioning KPIs in the context of the sustainable growth planning process and by helping employees be clear on all its elements - purpose, vision, strategy and business and action plans.
Here's some common questions: What's a good KPI? How can KPIs be improved? How do I write a KPI? GrowthCatalyst can help.
We invite you to contact us to arrange a conversation, face-to-face or virtual.
Alternatively, you can book a time for an initial discussion here.
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