Successfully Optimizing Non Financial Indicators

This scene from Rotterdam (NL) symbolizes the transition from old to new KPI's.

My blog on My Final Checklist of Key Performance and Non-financial Indicators (KPI's) has got quite some attention, being read more than 20,000 times! According to your reactions many of you have used my advice to implement key performance indicators for non-financial processes. However, the results seem to be mixed. Over time I received more than once the question if currently a better set of non-financial indicators is available.

Perhaps there may be better KPI’s available, but I am not so sure that the problem lies in the KPI’s. So the question is how to fix seemingly non working KPI implementations. So why are results mixed, how to improve and optimize the results, and what should change.

The purpose of a non financial KPI

Let us start by asking ourselves the question why we wanted KPI’s for. In an organization we want predictable and repeatable business processes with an acceptable performance. Also, we want to enable structured improvement of such a business process.

KPI’s measure the performance of a system result, or an enabling system process. The process monitored by the KPI is part of the system of organization, business processes, and information systems.

Of those 3 system parts, organization, processes and information systems, only the last, the information system is fixed. Change is slow, although better usage of the existing information systems is usually possible. The other 2 parts, organization and processes, display a dynamic behavior. Under pressure, what ever the reason, they can become ‘fluid’. This implies that their behavior can change over time. Not so the KPI’s though, they remain static. So, it is very well possible that a KPI is fine at first, but looses its effectiveness over time. And not seldom very fast indeed.

2 Examples of Induced Fluid Behavior of Organization and Processes

Let me give 2 examples of KPI selection methods, doomed to fail over time:

Top-down example: The top management introduces some KPI’s

When top management introduces KPI’s, the organization and its individual units will show resistance. It will reorganize itself, thus reducing the impact of the KPI’s, and if some way possible, maximizing the maximal benefits for the organization unit. The rationalization behind the KPI is fully neglected.

Bottom-up example: every team defines their own KPI’s

A team that is asked to define their own KPI’s, will display great enthusiasm. This is a management sponsored chance to divert from normal operations. The resulting KPI’s will isolate the impact of other departments on the processes of this unit. ‘One cannot be held responsible for the activities of others’. It does not matter whether this regards internal colleges, or external clients.

Conclusions

There are 3 important reasons why static KPI’s might not work:

  1. Once people start thinking about KPI’s they start rationalizing their behavior, and consequentially their behavior starts changing.
  2. People tend to change their behavior in order to minimize the negative effects of KPI’s, such as disturbance of their day to day work by other parts of the organization.
  3. People tend to keep minimal levels of work in their in- and out tray in order to keep busy all day.

How to fix non optimal KPI’s?

If KPI’s do not seem to work as expected, careful observations and a detailed analysis are required. Chances are high that you identified a structural system defect. This defect must be repaired and tested first before you can define, implement, and evaluate new KPI’s.

Also, it is very advisable to use a modern tool approach. This makes analysis, design, and evaluation a lot easier.

What should change

People are blind for their own flaws. Therefore, it is very advisable you ask a qualified external consultant to help you.

Tasks and activities of the external consultant:

  1. Guidance of the organization during observation and analysis.
  2. Stimulating of management and employees for objectifying the observed facts, and reduce the fiction.
  3. Facilitating of a concrete and simple plan to define and implement non financial performance indicators.
  4. Stimulating and guidance with improvement iterations, until an optimal result is established.
  5. Evaluation and implementation of ‘best practices’.

What are your own experiences with the implementation of non financial KPI’s? I appreciate hearing from you!


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