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To make sense of today’s complex customers, the right performance measurement is more critical than ever. Thereby, it is important to deviate from the norm of KPIs to select only the ones that are “SMART” and relevant for all individuals in, not only for the company.
• Companies often measure their success through Key Performance Indicators, which are aligned to corporate goals and have to fulfill some criteria.
• The biggest obstacle in determining the right indicators is that they have to be relevant – not only for the company, but also for every employee. By following six simple strategies, it is way more easier to make the indicators relevant for them.
In companies there needs to be a tool to measure success. One of the most common way is with the help of Key Performance Indicators (KPIs). KPIs evaluate the success of a company or a particular activity, such as projects, programs or initiatives. First, it is important to determine corporate goals to understand what is important, and to get to know the key activities of a company for identifying the key performance indicators (KPIs).
"To select meaningful KPIs, a company needs to know their employees"
An usual way to establish KPIs is to identify metrics to grade the progress against corporate goals. In a next step the company captures actual data for those metrics to map them into scorecards. This may now sound easy and logical. Simply align the KPIs to corporate goals – but there are some other factors, which also need to be considered, before setting them and demanding from employees to reach them.
A worst case scenario of a well-intended KPI was shown in an episode of the TV series “Undercover Boss”. COO Larry O’Donnell walked in the shoes of his employees for a few days under the guise of another identity. He discovered firsthand the effects his KPIs had on employees. Specifically, the productivity and efficiency KPI convinced one of his “co-workers for a day” that to satisfy her production quota she needed to urinate in a coffee can to save time. As a truck operator, stopping to use a restroom affected her performance grades. Therefore, she decided it was more efficient to use a coffee can she kept with her in the vehicle. O’Donnell later acknowledged that this was not what he had in mind when he selected the KPI. Even if this example may be an extreme – what happened is not so uncommon.
To avoid such situations, many organizations have adopted a specific approach for establishing KPIs. It is called the SMART criteria technique and it requires that a KPI must satisfy these five criteria: Specific, Measurable, Attainable, Relevant, and Timebound.
Unfortunately, some organizations still find themselves unsatisfied with the results of this technique due to a misinterpretation of the term “relevant”. The biggest obstacle is that is often defined as “relevant to company goals”, but they also have to be relevant to the employees. KPIs become mostly effective when everyone throughout the organization is aware of them and works toward improving them. Without relevancy for the employees, organizations need to convince them into acceptance only through communication. And that is even more challenging.
So to make KPIs relevant, one option is to follow these six simple strategies to put the relevance for everyone into KPIs:
1. Identify your target audience. To select meaningful KPIs, a company needs to know their employees. It is especially important to find teams and individuals across the organization who have the ability to impact others and the health of business. These are not necessarily leaders and strategist. More often these are employees executing on and managing front lines. To send an initial impulse, it can be helpful to first, identify specific individuals and then, extrapolate cross-functional employees from the list.
2. Take an holistic approach to study the company’s people. Observe them in their work environment to get to know their needs, motivation, goals, desires, constraints, and obstacles. Helpful tools can be research methods, such as participant observations, inquiries, interviews and questionnaires, to gain insights. Thereby, a company should focus on answering questions like: Are the employees driven by financial, intellectual and/or emotional goals? Are they motivated by fear? Using this information, it is possible to establish tangible “personas” that synthesize these attributes. These personas can serve as a powerful communication tool and grounding mechanism to support business decision.
3. Identify business rhythms. Normally, people and businesses have their schedules and routines. Once those key individuals and teams have been identified, it is possible to determine the patterns and frequency of their activities.
4. Find the gaps and conduct them. To select KPIs it is also necessary to understand where individual goals and activities are not consistent with corporate one’s. Knowing them is advantageous as it gives an organization a blueprint of areas to address or to consider and target when selecting KPIs.
5. Consider onlyKPIs within control. Knowledge of work-life details is crucial for selecting KPIs, because it only makes sense to choose a performance indicator, which can be influenced. Additionally, they need to be easy to calculate, clearly defined and focused in purpose.
6. Align KPIs to compensations. In the end, compensation (bonus or base) is a simple, but effective tool to make KPIs relevant for employees. Just adjust the existing model as necessary, so that any benefit from improved KPIs will have also a positive impact on them.
Even though this may sound like a long process and a lot of work to select and establish relevant KPIs, it will be worth it. The company will not only have more precise KPIs, but also it is easier for the employees to perform activities more accurate, which also leads to a bigger success.