Which Performance Measure Method Produces the Best KPIsby Stacey Barr
This research shows with performance measure method produces KPIs that have the best scores based on 13 KPI Excellence Criteria.
One of my ongoing research projects is to find out how the KPIs in my readers’ organisations score across 13 criteria of KPI excellence. So far, the overall score is 66% on a 100% scale.
But that’s not a number you can do anything useful with. What’s useful is to dive into what produces this number, such as the performance measure methods used. And that’s a good place to start: what are the KPI methods that the researched organisations use?
Which performance measure methods do organisations use?
The most commonly used performance measure methods were PuMP and, if you believe it’s a true performance measurement method, the Balanced Scorecard (but I don’t believe it is). There were very few mentions of Lean and Six Sigma as methods, too.
The most important point, however, is that the vast majority of organisations have no formalised performance measurement method at all.
This adds a limitation to what we can draw from this research. The vast majority of people who responded work in organisations likely to have low measurement maturity and, therefore, high misunderstanding of what good performance measurement is. This means at least two things:
- They will mistakenly think things like spreadsheets, brainstorming, SMART, and working groups are proper KPI methods.
- They will overestimate the goodness of their KPIs.
Consequently, we won’t see as much spread in the scores of KPI excellence. In fact, we see hardly any low scores at all. And that’s surprising because it doesn’t match what we see in reality.
Even though we need to take care interpreting this research data, let’s jump to the punchline: which performance measure method produces the best KPIs?
Which performance measure methods lead to the best KPIs?
Even with the very narrow spread of KPI Excellence scores, given the overestimation mentioned above, it appears that PuMP still stands out as the leader:
It’s got me very curious what the custom approaches are that some organisations are using… But given the top three scoring KPI methods are, indeed, real KPI methods, the results are not surprising: a deliberate approach to performance measurement will produce better KPIs.
What exactly does a deliberate performance measure approach do, to produce better KPIs?
So, how can organisations get better KPIs?
The research was, as mentioned, based on 13 criteria of excellent KPIs. For those organisations that scored the lowest on the KPI Excellence Assessment, these were the five criteria that were their weakest:
- Criterion 2: Measures are created for results-oriented goals. One of the biggest misunderstandings in measurement is the difference between action and result. Too many KPIs track the activity to achieve a goal, but the good ones track the result implied by the goal.
- Criterion 3: Measures are direct evidence of the goals. The KPIs used by organisations with lower measurement maturity are often the easy-to-get metrics, and tend not to be very relevant.
- Criterion 10: Measures drive performance-improving behaviour. One of the big reasons that organisations have low measurement maturity is that measures are still perceived as tools for judgement, not for learning and improving processes.
- Criterion 11: Measures are connected in linked relationships with each other. Relationship links that align performance measures to each other is an advanced measurement concept, so it’s unlikely to be a strength for most organisations.
- Criterion 13: The users of the measures value them in decision-making. Naturally, this is weak when several of the other criteria are weak too. Poor KPIs are rarely considered valuable.
Needless to say (or is it?), these criteria were also scored lowest by organisations that had no formal performance measure approach. For me, this was the biggest message from the research: most organisations still don’t have a deliberate KPI approach, and they clearly need one.
If you want better KPIs, you have to care about the KPI approach you take. Research is showing that PuMP is the best approach.
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