KPIs, Targets or Initiatives – Which Comes First?by Stacey Barr |
The order that we think about KPIs, targets and initiatives has a profound effect on whether or not we end up with the right KPIs.
There is a common sequence in how many organisations’ approach their strategic planning process. After the initial business environment scan and analysis has been done, and strategic priorities identified, that sequence often continues like this:
- Write the strategic goals
- Choose strategic initiatives
- Set targets
- Select KPIs (if it’s not too hard, and time hasn’t run out to get the strategic plan published)
Think, for a moment, about the logic behind this sequence.
It suggests that once we know the goal, we can decide how to reach it, before we understand how much improvement is needed. And then, we can set a target to quantify how much improvement to make, before we know how we’re measuring (quantifying) the result we want.
The strategic plans that ignore this simple logic are laid out something like this:
|Enhance efficiency of recruitment||Educate recruitment officers||100%||Recruitment officers trained|
|Recycle and reuse resources||Develop a recycling and reuse policy||25% reduction||Policy implemented by December|
|Address supplier non-compliance||Adopt risk management procedures||100%||Risk management procedures implemented|
That logic doesn’t make sense, for several reasons.
Firstly, it’s not logical to set a target until we know what we’re measuring.
Setting a target before selecting the KPI is why so many targets are generic and vague, like “Reach 100%” or “25% reduction”.
Reach 100% of what, exactly? Absolute targets are risky. Do we know what attaining or sustaining that level of perfection is going to require in effort and investment?
A 25% reduction in what, specifically? And how do we know that 25% is enough? Or too much? How do we know we can afford that much change? Or even if it’s possible? We don’t know the measure yet, so we don’t know our baseline performance.
It’s much more sensible to set a target after we’ve decided that the best measure for the goal to ‘enhance efficiency of recruitment’ is Average Days to Fill Vacant Positions. And established that the baseline is 93 days. And in order to meet other business goals, it really should be reduced to 45 days. A target of 45 days for Average Days to Fill Vacant Positions is now a much more meaningful target.
Secondly, it’s not logical to choose an initiative until we know the cause of the performance gap.
That’s why so many strategic initiatives have such low returns on investment. They’re usually the pet projects of leaders with a lot of influence. Or they’re the first obvious idea that comes to mind. Or our default crutch to either educate people or implement a system.
Educating recruitment officers is a prime example. So much training goes ahead without a clear definition of what performance gap that training is supposed to close. What if the cause analysis of the performance gap were to reveal that the problem is management approvals, and not officer skills?
Good strategic initiatives are designed from the conclusions of deep analysis about causes at the root of why the goal is not current reality. And to direct this analysis, we need a KPI that gives us evidence of the goal. That’s because reaching a goal means closing a performance gap, not getting a project completed.
Thirdly, it’s not logical to select a KPI that tracks the initiative.
Setting the KPI after the initiative is why so many KPIs are just milestones for getting tasks or projects completed. Or they’re just trivial counts of how much output or activity gets done.
How exactly does the number of recruitment officers trained prove that recruitment efficiency is enhanced? Is implementation of risk management procedures really evidence of lower supplier non-compliance?
Evidence that an initiative was implemented is not evidence that it was successful, nor that the goal was achieved. KPIs need to be designed as direct evidence of the goal we’re trying to achieve. And that means we need to understand how to move away from activity measures and toward outcome or result measures.
There’s a more logical sequence to strategic planning…
The more logical, useful and effective order to lay out a strategic plan, or any goal-based plan is: goals, then KPIs, then targets, then initiatives. Like this:
|Enhance efficiency of recruitment||Average Days to Fill Vacant Positions||Reduce from 93 days to 45 days||Reduce waiting time for approvals by simplifying authorisation protocols.|
|Recycle and reuse resources||% Resources to Landfill||Reduce from 68% to 50% (first 6 months) then to 25% (first year)||Create a recycle and reuse policy and help teams design it into their operational processes.|
|Address supplier non-compliance||Number Non-compliances per Supplier Transaction||Reduce from 4.5 to 2||Communicate our compliance standards with suppliers and create a compliance management plan in collaboration with them.|
If the logic of your strategic plan needs reworking, there are two things to do. Firstly, review your planning process to make sure it’s not allowing initiatives and strategies to be chosen before you first have measures for your goals or objectives. Secondly, modify the layout of your plan so it makes more sense. You can find a template to get you started here.
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