Effective KPIs Bring Amazing Changes

Dec. 11, 2007
What is most important about key performance indicators (KPIs)?
“If people set up operational KPIs effectively, what they can achieve is an amazing change in employee behavior, to better match up with company goals,” contends Julie Fraser, principal and industry analyst with market research firm Industry Directions Inc. (www.industrydirections.com), Cummaquid, Mass. “But that is, [only] if done effectively.” Industry Directions’ research reveals that companies don’t fully understand one crucial aspect of KPIs: how to roll out these metrics in a way that allows alignment from the top business goals all the way down—and in a way that also serves the individual employees. Other hindrances cause ineffective use of KPIs, which Fraser defines as a specific type of performance metric that gauges a company’s current and likely future success. But the true obstacle she perceives is “using them for political purposes or to make someone look good.” That observation is in the same ballpark as Maurice Wilkins’, who is vice president of consulting with industry analyst firm ARC Advisory Group Inc. (www.arcweb.com), Dedham, Mass. He thinks unrealistic KPIs can be detrimental to performance improvements and morale.  Whether practical or not, these performance metrics’ meaning varies across industry. Fraser says she’s “always seen that a KPI is an aggregate measure, an overview of detailed metrics.” Ditto for Dave Emerson, a systems architect with automation vendor Yokogawa Industrial Automation America Inc.’s (www.yokogawa.com) U.S. Development Center, in Carrollton, Texas. Focusing on batch processes, he suggests integrating multiple KPIs into single metric called a production performance rating.  The integrated KPI equals an indexing tool that identifies best-performing and worst performing groups—or the Golden Batch versus the Brown Batch, Emerson explains. “In a continuous-improvement environment, you have to identify what you do well, which batches were most efficiently produced and understand why,” Emerson emphasizes. “And you have to determine which are difficult to produce and why.” Calling production performance rating a “blended KPI,” Wilkins notes that another blended KPI now gaining industrial attraction is OEE, or overall equipment effectiveness. It measures production rate and quality, along with equipment availability. Whatever it’s called, any emplaced KPI should be part of a company’s stated continuous improvement process and be communicated to employees as such by executive management, Wilkins advises. “The actual KPIs need to be set at realistic levels—either by looking at past data from the site itself or else by benchmarking against industry norms.” His suggestion dovetails with Yokogawa’s view of the Golden Batch, which Emerson calls a “statistical determination” and advises using as a benchmark and comparing everything else to that.Bottom-line impactThis production performance rating makes sense to Fraser. “The goal is to show individual impact on the bottom line,” she says. And that gets right to the heart of KPIs’ importance. “Properly conceived and executed, they can truly help drive improved performance,” she emphasizes. But KPIs need to be dynamic—and that’s a challenge most companies have yet to face because they lack a review process to track change, Fraser adds. “To the degree that they do, what still often happens is that the old KPIs never go away.” And that creates wasted time and energy, plus conflicts, because aged KPIs cannot only be meaningless but counterproductive, she observes.  As one approach for improving KPI effectiveness, Wilkins suggests more use of cross-industry benchmarking. ARC facilitates a successful benchmarking consortium where a group of almost 200 sites from about 30 companies measures up to 25 KPIs chosen by the group, he explains. While not every site uses all of them, he notes that “these metrics are helping the consortium members to improve their production and people processes.” That’s amazing change. C. Kenna Amos, [email protected], is an Automation World Contributing Editor.

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