No CEO doubts the importance of measuring their company’s performance properly. Yet the executive teams generally struggle to engage with the challenge. As one CEO stated, “when we get to corporate KPIs their eyes glaze over.” Or, as another said, “They [the managers] start looking for the exits.”
When you look at what these KPIs so often are, you can understand why so many managers switch off. The number crunchers take over and can overwhelm operating managers with spreadsheets and precise breakdowns of financial results and output measures. Pretty soon managers feel like they’re being asked to jump through hoops that they don’t really understand — and don’t particularly want to.
The author of this article states that KPIs need to reflect the fact that value creation is a two-way street, and that both sides of the transaction need to get something out of it. Think about it. Why do you want employees to be engaged? Because you need something from them. It’s critical to understand the decision-making criteria that key stakeholders use to support their entity and what you need from them in return. The two-way street for employees is defined by how well the company delivers on the things that employees want, tracked by relevant tools, and by tracking the productivity and innovation of employees as a group. Most organizations fail to develop measures on both sides.
To most managers, a set of performance measures just looks like a table of numbers. Since they appear to be concurrent, managers rarely question the way each measure impacts the others. But leading indicators should predict the future. If your organization does well with employees now, that drives results for other stakeholders such as customers tomorrow. If your organization does well with customers tomorrow, then shareholder outcomes will be improved the day after. Once managers get that this is what KPIs are supposed to do, they start asking themselves some really interesting questions about how their business works.
As the conditions around an organization, department, or function continue to change, organizations must be prepared to morph their performance measures. It’s set and reset, not set and forget. As many CEOs observe these days, the dynamics of their respective business operating environments are changing constantly in response to digital innovation, social media, and the emergence of Covid-19. It’s time to rethink how they develop their performance measures. Going forward you must look at performance as a two-way street and watch for the linkages between indicators and the impact of one upon another. And most importantly, be ready to adapt to rapidly changing circumstances.