Years ago I consulted for an organization that had an enticing mission, a dynamic and highly qualified workforce of around 200 people, and an innovative roadmap that was poised to make an impact — estimated to be ~$350-500M (yes really, that big). But there was one huge problem.
As engineers, the leadership could readily provide information about uptime and Service Level Agreements (SLAs). But they had no idea whether they were on track to meet strategic goals — or even whether they would be able to deliver key operations projects — at all! We recommended that they focus on developing metrics, and provided some guidelines for the types of metrics that might help them deliver their products and services — and satisfy their demanding customers.
Unfortunately, we made a critical mistake.
They were overachievers. When we came back six months later, they had nearly a thousand metrics. (A couple of the guys, beaming with pride, didn’t quite know how to interpret our non-smiling faces.)
“So tell us… what are your top three goals for the year, and are you on track to meet them?” we asked.
They looked at each other… then they looked at us. They looked down at their papers. They looked at each other again. It was in that moment they realized the difference between KPIs and metrics.
- KPIs are KEY Performance Indicators. They have meaning. They are important. They are significant. And they relate to the overall goals of your business.
- One KPI is associated with one or more metrics. Metrics are numbers, counts, percentages, or other values that provide insight about what’s happened in the past (descriptive metrics), what is happening right now (diagnostic metrics), what will happen (predictive metrics or forecasts), or what should happen (prescriptive metrics or recommendations).
For the human brain to be able to detect and respond to patterns in organizational performance, limit the number of KPIs!
A good rule of thumb is to select 3-5 KPIs (but never more than 8 or 9!) per logical division of your organization. A logical division can be a functional area (finance, IT, call center), a product line, a program or collection of projects, or a collection of strategic initiatives.
Or, use KPIs and metrics to describe product performance, process performance, customer satisfaction, customer engagement, workforce capability, workforce capacity, leadership performance, governance performance, financial performance, market performance, and how well you are executing on the action plans that drive your strategic initiatives (strategy performance). These logical divisions come from the Baldrige Excellence Framework.
Similarly, try to limit the number of projects and initiatives in each functional area — and across your organization. Work gets done more easily when people understand how all the parts of your organization relate to one another.
What happened to the organization from the story, you might ask? Within a year, they had boiled down their metrics into 8 functional areas, were working on 4 strategic initiatives, and had no more than 5 KPIs per functional area. They found it really easy to monitor the state of their business, and respond in an agile and capable way. (They were still collecting lots more metrics, but they only had to dig into them on occasion.)
Remember… metrics are helpful, but:
KPIs are KEY!!
You don’t have thousands of keys to your house… and you don’t want thousands of KPIs. Take a critical look at what’s most important to your business, and organize that information in a way that’s accessible. You’ll find it easier to manage everything — strategic initiatives, projects, and operations.