Management by Measurement – The true value of Performance Indicators


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Bas Beuger
Posted by Bas Beuger on Oct 24, 2012

Business Process Management

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“If you can't measure it, you can't improve it” is a wise saying by Peter Drucker. In this blog I elaborate on the use of Performance Indicators (PI’s) in order to measure the performance of your processes and present some valuable tips regarding the use of PI’s. In my following blog I will demonstrate how I used PI’s in one of my projects in order to improve business  performance.

PI’s provide us valuable information about how our processes are running and whether adjustment is required. On a strategic level these indicators are called KPI’s:  Key Performance Indicators. They are used to get insight in the extent the organization is attaining its strategic objectives. On a more tactical and operational level, PI’s provide information that can be used for making processes more effective and efficient which in turn enhances customer value. Besides, PI’s may eventually indicate the need for projects required (such as redesign of our processes or adjustment of applications). Whereas the design of a process helps us to plan the operational work in line with our strategy (how the process is intended, how it should work), PI’s help us to reflect on how the work was actually executed (how the process is working, how it actually is).

PI-as-a-thermometer

 But what does a PI look like? See it as a kind of thermometer that you can stick somewhere in the process in order to get insight in how ‘healthy’ that part of the process is. Just as with human beings this temperature indicator gives us a signal whether we are healthy or special attention (in the form of a doctor visit) is needed. A PI focuses on a specific aspect of the process and provides steering information. Examples are cycle time, waiting time, customer satisfaction, actual costs vs budgeted costs, employee satisfaction, etc.

Some useful advices for using PI’s

In practice I see organizations struggle with the use of PI’s. I certainly don’t want to be conclusive, but I would like to share some best practices on using PI’s:

  • Be transparent and clear about PI’s: Why do you measure certain aspects in your organization and how do they contribute to your organizational objectives? How are these related to the concerns of particular internal or external stakeholders? How does the customer benefit from measuring (and steering on) this PI? How do you exactly measure the PI? And what is the norm that should be achieved?
  • Steer on PI’s: If no one is accountable for attaining PI’s and no feedback is provided, the periodic PI-reports will become a meaningless collection of numbers. The use of certain PI’s, and feedback on the attained scores should be daily business. It should be a recurring topic of conversation with individual employees, teams and departments. The process manager(s) of the process(es) on which the PI is applicable, should also be part of this conversation.
  • Keep your goal in mind: You can invent all kind of PI’s, come up with dozens of ‘measurable things’ within your processes, but in the end it is all about actions that are taken in order to improve your business performance. From both a managerial and an operational perspective we cannot focus on dozens of PI’s at the same time (which are often also contradictory). Too often, organizations drown in all kinds of PI reports they generate, just because they can. So focus on those PI’s that provide the most valuable information and keep your (internal or external) customer in mind! How is the defined PI related to the customer? How does this customer define value and is the set PI norm in line with the demands of the customer?
  • Measure-for-successManage your PI’s: The management of PI’s is a management discipline on itself. Regularly evaluate whether you are still measuring the right things from a customer value perspective, how PI’s may affect each other and whether a shift in focus on specific PI’s is required or the PI’s themselves should be adjusted. Also the adjustment of the set norms might be necessary because of changing customer demands!

 

Open communication about performance, determining possible process improvements and ways to motivate desired behavior are essential for organizational success. I see PI’s as a useful means to do so. But still, a PI alone results in ‘just’ a number, and action is required to reap the benefits of measuring your performance. So the true value of using PI’s is (1) to get insight in performance and (2) to start the conversation with employees about improving the way you working and increasing customer value.  In my subsequent blog I will show you how I participated in a project in which we used PI’s in order to improve business  performance.

 

Do you have any additional tips on using PI’s? Please feel free to share by leaving a message or send an email to b.beuger@bizzdesign.nl!

 

 

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