“Absolutely. It may be painful to figure out and confirm company strategy and develop KPIs. But once you do, you’ll have a very effective way to measure and tune department and company performance.”
What’s important, he mentions first, is linkage among those measures, dashboards and scorecards. “Dashboards get people to focus on the most important pieces of information and, very clearly, to be able to discern performance.” What populates dashboards are typically referred to as KPIs, he says, adding that a collection of KPIs is called a scorecard.
Explaining that KPIs are relevant, actionable, key measures connected to a company’s strategy, with which a business evaluates itself, Schiff says top-level indicators should measure results such as the rate at which a product is being made, at what costs and at what quality. Approaches may differ, depending on the company, when drilling down further to KPIs measuring supply chain performance and other manufacturing variables. Regarding measurement frequency, Schiff notes that while all KPIs may not be measured with the same regularity, companies should periodically review KPIs for relevancy to corporate strategy.
Metric or KPI?
Common problems that can arise with KPI use are several. One challenge is distinguishing between a metric and a KPI, Schiff says. “A metric is simply a measure. It underlies the KPIs when you drill down [for more detail].” Other issues can arise in developing an action plan and defining KPI ownership, prior to rolling out a company’s dashboard. Ownership, Schiff explains, involves who is responsible for doing something about an under-performing KPI, and what is it they’re going to do.
If no one claims ownership when a KPI is in what Schiff calls the “red zone,” the result can be crisis-focused, shortsighted decision making. To avoid this issue, Schiff stresses that ownership and actions plans should be established in advance. “Too, get widespread use and adoption of dashboards throughout the company,” he adds. To get that, the dashboard and its KPIs must be relevant for use at the executive and department levels as well as by lower-level employees, he says. “The information should be a combination of what users need to know about corporate information and what’s relevant to their specific jobs. That’s what’s going to keep them coming back for more,” he predicts. Schiff notes that dashboards need to be interactive and near real-time, which he defines as the time required to accumulate enough data to spot a trend.
Developing KPIs, which must be tied to specific department strategies, also means dealing with company politics, Schiff says. One layer is the team that decides the performance measures; the other is the team that selects the KPIs. “What you often have is people not wanting to be measured on areas in which they or their departments are under-performing. And they may seek to add non-strategic KPIs at which they’re doing well,” he observes. The selection team should include information technology (IT), as well as sales, finance, marketing, operations, research and development, and engineering—plus a senior sponsor who will drive the initiative, cast tie-breaking votes, if necessary, and set the cultural tone, Schiff adds.
Corporate cultural issues can also raise questions, he says. First, how should employees use the information? Secondly, how will the company use the information? Some data may be confidential. And employees may ask if the information will affect their compensation. Says Schiff, “In a true performance management initiative, the ultimate goal is to tie compensation to performance.” He suggests, though, that companies go slowly in linking compensation to performance through KPIs. “First, let people get comfortable with and accepting of this measurement system.”
C. Kenna Amos, [email protected], is an Automation World contributing editor.
