In our executive coaching process we work with clients on understanding the different between KPI’s (Key Performance Indicators) and Drivers.
Too often owners make one of two mistakes:
- They will focus on KPI’s as something their people can do something about.
- They have too many KPI’s in their company.
You should only have one or two KPI’s in your company. When Paul O’Neil ran Alcoa Aluminum he only had one thing he cared about. That one thing was safety. Because he concentrated only on safety, he completely changed every key area of the company
Everything at Alcoa was based on how they improved safety. Every part of the company changed their measurement systems to underscore safety improvements. Not only was safety improved, but communications, gross profit, and net profit also improved. They improved so much that Alcoa became a darling of Wall Street.
I believe a great KPI is one that is really important to the company’s success. Often a KPI is a measurement that shows what happened in the past. It’s a measurement of what has gone before. The problem with a good KPI is that no individual can do much to influence its outcome.
Many business owners believe the solution to a high level KPI is to develop many lower level KPI’s. I find this usually confuses people in the company about what is really important or all KPI’s get ignored because no one knows which one is really important.
Drivers should replace the zillions of KPI’s many companies have. I often see people with localized KPI’s for each part of the company. This not only causes confusion for what is the really important KPI but also fosters silo thinking. When the entire company is focused on one or two KPI’s, they can start developing individual drivers that lead to an improved company wide KPI.
If our KPI is to improve profit before taxes some of the following might be good drivers:
- Production per hour on a manufacturing line.
- New ideas produced by the research and development department.
- The number of A customers the sales department develops.
- Measurements and improvements in backlog .
- Improvements the length of time it takes for administrative functions to be done.
I think the more we understand drivers and how they lead to better KPI’s the better chance we have of improving total company operations. With one or two KPI’s we can focus on developing effective drivers. The drivers we develop must be directly influenced by the people doing the work.
The more we help our people understand that they do have influence over a big measurement like profits the easier it is to get everyone working in one direction. Well-designed drivers are easy for workers to see how they directly impact improvement in their driver. When employees understand how their work makes the drivers better it usually is easy to connect the dots to how the driver impacts the larger KPI.
When our employees start understanding how their work affects the big important number excitement around drivers grows. We want everyone to be interested in our KPI. I find the best way for that interest to grow is through well-designed drivers where management makes meaningful connections to the larger important number.
What do you do in your company to help people understand what they can do to influence your Key Performance Indicator? You noticed I wrote this in the singular didn’t you?
We’ve put together a mind map on developing a dashboard. You might want to have a dashboard that has all of your drivers in one place. This allows you to see the small changes that add up to a huge number. To get this mind map, click on the button below.