What are the ingredients of successful KPIs?

By Louise Druce, features editor

Key performance indicators (KPIs) have long been used in business to do pretty much what it says on the tin: measure business activities at prescribed stages to judge the immediate and long-term benefits in everything from leadership development to service and satisfaction levels.

But according to business development company Ibis Associates, the term KPI has become “one of the most over-used and little understood terms in business development and management”. Not only is it confused with metrics, Ibis claims that “against a growing background of noise created by a welter of KPI concepts, the true value of the core KPI becomes lost”.

What may well be contributing to this is that while the label is self-explanatory, it comes with no ingredients or methods to create the perfect KPI tools.

Ibis believes, when properly developed, KPIs should provide all staff with clear goals and objectives, coupled with an understanding of how they relate to the overall success of the organisation. It adds that “published internally and continually referred to, they will also strengthen shared values and create common goals."

However, implementation largely comes down to the size and nature of the company, as well as its expectations and technology capabilities.

Balancing the elements

Global management company Hay Group has opted for the balanced scorecard approach, which is divided into four quadrants designed to reflect the different qualities it needs from its consultants on all levels.

The first quadrant is used to reflect learning and growth based on the value it can bring to clients in terms of technical capabilities or organisational behaviours. The second revolves around clients, having an in-depth understanding of the industries they operate in, their drivers and structure etc. The third measures the value the consultants are bringing back to the company through knowledge and learning. And the final quadrant judges the commercial elements such as delivery and sales.

A top-down and bottom-up planning process in place makes sure the KPIs are meeting the objectives of the company from a global perspective, as well as getting the right stretch between what the business demands and what is needed from the organisation.

The overriding idea, though, is that KPIs should be mixed together with interaction from the people on the front line to make them ‘come alive’, rather than being an automated tool that may benchmark processes but doesn’t reflect the changing nature of the organisation.

“We have technology in our process but it’s at the most stable elements,” says Hay Group consultant Marcus Downing. “You can’t use technology to subsidise conversation. If you make the system too automated people think they are talking to a machine rather than talking to a human being.

“The danger is that when you have really sophisticated technology the system drives what’s expected rather than what the people and the organisation need, so you can hamstring your performance management processes when it’s not fit for purpose.”

To truly benefit from putting KPIs in place, he believes you should think not only about the organisation’s long-term goal but also the individual perspective. “If you’re going to have an effective consultant, team or organisation, the first thing you need to think about is what you want to achieve and how the bigger goal relates to you. That performance management process makes you sit down and think about how clear are we about what we really need,” he adds.

“Some organisations think about it intuitively rather than taking the time and space out to answer that question. What can happen is that you have everyone in a room saying ‘I know what’s required’ and then when you ask what’s required each will come up with a different answer. It’s only when you get them to articulate it and share it than you can really work out what is common to the room, which part do we agree on, which do we leave for another time etc. That’s when it makes the process useful.”

Power of the people

The people focus when setting KPIs is echoed by James Clarke, head of people operations at business advisory service KMPG. The company has a comprehensive set of KPIs across the whole 'people agenda' looking at everything from turnover and retention rates to measures around training and recruitment.

“The key is not to get hung up on figures alone but on the people around them, rather than discussing them as a piece of paper,” he points out. “In the past, you would see figures that weren’t actively discussed as part as an overall people strategy, they were indicators of what or was not working.”

Now, KPIs are used to look at the bigger picture. “If we know if there are a set of measures pointing at, say retention problems, we are able to put it in context with other things such as buoyant labour market,” he adds.

What is interesting in a company as large as KPMG, when experimenting with KPI technology it looked at a number of different, sophisticated systems but kept returning to the more basic Excel programme. “It’s a bit more labour intensive but so much more flexible than some of the other, cleverer tools,” says Clarke. “Not only is it something everybody easily understands, it allows us to change the KPI measures really easily and add in new fields.”

As a smaller company, PR marketing agency Chazbrooks also prefers to rely on the strength of the KPIs rather the technology providing them. “We do try to make everything measurable now because the service we offer is so hard to measure,” says managing director Mandy Brooks. “Some clients have no measurement systems in place themselves and we encourage them to do it because if they are not measuring themselves and they’re not measuring us it’s hard to prove you’re effective.

“We try to find out from the clients what their key objectives are and how we can channel into that. It’s effective because we are directly meeting their objectives.”

However, Brooks also warns that it’s easy to get so wrapped up in KPI objectives that you miss the bigger goal. “I like measurements because you focus, but it can also make you blinkered,“ she continues. “Be very specific about your aims and goals. It’s quite easy to set targets and people become very motivated and go for them, but if they’re not what you need to achieve they can go on a tangent.”

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