A 7 Step Approach To Define Indicators

At KPI Library we are often asked to help businesses to define their measures. Since we are not a consulting business we refer most of these requests to partners and specialized consultancies that do deliver these kind of services.

In the many years that I have been talking about performance management with businesses all over the globe, I have seen many businesses make the following mistakes:

Mistake 1: Defining too many "KPIs" and too many financial "KPIs"
Mistake 2: Reporting too much detail behind the KPIs, wanting to drill-down to the root of everything.
Mistake 3: Due to 1&2 it takes too long to consolidate all the data so the KPI reports distributed are outdated. And since most of the KPIs are financially oriented the reports tend to describe past-performance rather then to give insights in future performance.
Mistake 4: "KPIs" are defined to pass the "blame" for missed targets and milestones. Off course managers are trying to beat the system in this company culture.

This is not performance management, but pushing reports, passing the blame and relying on past performance to predict future results. Unfortunately this is the way most businesses have "implemented" performance management.

Now the question is: How do you move from "past results", "pass the blame", monthly-quarterly reporting culture to "reach our goals", work together, future focused performance management culture?

Off course you need leadership, a culture of trust, feedback and willingness to change. But besides the management skills and culture you also need a structure to define the right goals – activities and indicators.

Here is my 7 step approach to do just that:

Step 1. Define company goals
a. What are your goals for the short term? (6-12 months)
b. What are your goals for the long term? (36 months)

Step 2. What are the measures to determine if you have met your goals?
a. Key Result indicators for the short term. (Financial, non-financial)
b. Key Result indicators for the long term (Financial, non-financial)
(Key Result indicators are "lagging" indicators that help to measure past-performance.)

Step 3. What activities should you undertake to reach the goals?
a. Activities related to reaching short term goals
b. Activities related to reaching long term goals

Step 4. From all the activities that you could undertake, now select the 20% of activities that have the biggest impact on your goals.
a. Top 20% activities for the short term goals
b. Top 20% activities long term for the long term goals

Step 5. Who is responsible for seeing that top 20% activities are carried out?
a. Owners for top 20% activities short term
b. Owners for top 20% activities long term

Step 6. How are you going to measure if your most important activities are being carried out correctly?
a. List of Key performance indicators for top 20% of activities related to the short term goals
b. List of Key performance indicators for top 20% of activities related to the long term goals

Step 7. Of all your indicators (Key result and Key performance) that are listed above determine which ones:
a. Are already being measured / reported
b. Can be measured (data is available)
c. Can not yet be measured (data not available)

Start measuring the indicators that belong to 7a and 7b and start a project to implement the indicators that belong to 7c.
Measure both short and long term goals so you can avoid obsessive short term behavior. Measure your indicators with the highest frequency (preferably daily) and analyze trends. You need 20 data points to statistically identify a solid trend, so daily measures with 7 day SUM/AVG or 30 day SUM/AVG views are preferred.

Communicate your goals, key activities and key indicators with everybody in the company and have regular meeting and reviews of your activities.

Besides these 7 steps there are is 1 more thing you should do.
When you define your most important activities to reach your goals, also determine which of your current initiatives should be stopped since they are not related to any of your goals. Because, your staff simply can't do everything and do everything well.

Thanks to Karel van der Poel / KPI Library
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