Note: This is an excerpt of the report, “Performance Management Strategies: How to Create and Deploy Effective Metrics" published by TDWI. The full report can be downloaded from here:
Once you understand the components and characteristics of effective KPIs, the next step is to understand how to create and maintain them. This is where organizational dynamics comes into play. Much of the art involved in creating effective KPIs boils down to managing people and navigating the currents of organizational politics. Guidelines for creating effective KPIs divide into three groups: 1) before the project starts 2) during the project 3) after the project .
Before You Start
It’s important to lay a strong foundation to ensure the success of your performance management project and the effectiveness of your KPIs. To establish this foundation, an organization must:
- Set the strategy
- Obtain sponsorship
- Adhere to a methodology
- Frame the project
Set the Strategy. Since KPIs align performance with strategy, it goes without saying that you need a clearly defined strategy to succeed. It is surprising how many companies don’t have a strategy or haven’t clearly articulated it to a level of granularity that makes it possible to develop effective KPIs.
At a high-level, a strategy consists of a mission, values, vision, goals, objectives and plans. The mission and values define the why the organization exists, what it does, and its guiding principles. The vision combines an overarching purpose with an ideal, future-state competitive positioning. Goals are broad statements that embody what the organization would like to achieve in three to five years, while objectives represent short-term goals of one to three years. Plans define how the organization will allocate resources and staff to achieve the objectives.
Although most organizations have an overall or corporate strategy, few keep them current or up to date.
Although most organizations have an overall or corporate strategy, few keep them current or up to date. Moreover, few business units, departments, or working groups take the time to translate the corporate strategy into a strategy of their own or a set objectives to guide their plans, budgets and initiatives for the coming year. Since most dashboards are implemented at the departmental level, this means most KPI teams are groping in the dark trying to identify relevant KPIs for their dashboard solutions.
In the absence of a clearly articulated and up-to-date strategy or set of objectives, a KPI team must spend significant time interviewing departmental executives and corporate executives to understand the mission and direction of their group before they can commence with the actual work of defining KPIs.
Without engaged and committed senior sponsors at any level of the organization, it’s difficult to get anything done.
Obtain Sponsorship. Sponsorship is critical to a performance management strategy. Without engaged and committed senior sponsors at any level of the organization, it’s difficult to get anything done. First, you need senior sponsors to help you identify strategic objectives (something that many seem ill-equipped to do unfortunately.) Then, they need to persuade their peers to support the initiative and allocate the time of some of their key analysts to the project. They also need to secure funding and evangelize the solution to relevant employees to ensure buy-in and uptake
Obviously, it’s best if the sponsor initiates the performance management project rather than being convinced to support it by a lower-level (e.g., IT) manager. The best sponsors have prior experience with fact-based measurement from a prior assignment in another company or from a Balanced Scorecard workshop or conference where they have discussed the merits of such initiatives with experts and peers.
The sponsor needs to create a KPI steering committee comprised of his peers that represent all departments and groups in the organization. The committee serves as a governance board that oversees the direction of the initiative, secures funding, resolves disputes and assigns members to the KPI development team (see below.)
Adhere to a Methodology. Most performance management practitioners say it’s important to adhere to a methodology. They say it’s almost irrelevant what methodology you use as long as it’s been battle-hardened and refined over time. A methodology helps keep the project on track and takes proactive steps to overcome internal resistance to the program.
Given the political nature of implementing KPIs, it’s wise to hire a management consultancy to work with sponsors, educate them on the process, and provide moral support and guidance along the way. Consultants provide the vision, rationale and external validation needed to kickstart a project. Consultants also provide the necessary neutral voice to facilitate group sessions to brainstorm and prioritize KPIs.
A good performance management strategy incorporates both top-down and bottom-up approaches.
Some methodologies, such as Balanced Scorecard or Six Sigma, are complex and expensive to implement and require a top-down approach that raises political challenges. Other methodologies are focused on departmental initiatives and take a bottom-up approach to delivering KPIs. Many survey respondents said that a good performance management strategy incorporates both top-down and bottom-up approaches to ensure both strategic alignment and grassroots buy in to the program.
TDWI research shows that a majority of organizations use traditional requirements- gathering techniques, such as interviews and joint design sessions, to develop KPIs, while 42% and 15% use the Balanced Scorecard and Six Sigma methods, respectively. (See figure 15.)
Figure 15 - Based on 271 respondents who have partially or fully deployed a KPI initiative.