Crafting Understandable Performance Metrics Is The Key
Performance metrics that simple and easy to understand by everyone is the foundation for success to productivity improvement. All too often, performance metrics and other key performance indicators are based on monetary targets. Monetary targets that may be meaningful to managers, executives and Board members, but not by the teams in the trenches.
Performance metrics must mirror the activities being done by the staff involved, not the end of month financial results. Executing the work tasks within each business process drives financial results.
Performance Metrics Are The Notes The Orchestra Plays
Every musician in an orchestra has sheet music with the notes they are to play. Each musician must play their notes as written in order for the overall performance to be successful. Performance metrics are the musical notes that orchestrate a companies successful productivity improvement performance.
Additionally, numerous research studies confirm that:
Clear goals linked to easy to understand metrics improves performance in the work place.
When work teams truly understand what is expected of them, they are more productive. Also, research suggests they tend to have higher levels of job satisfaction than those who don’t. Clear performance goals tied to understandable performance metrics set expectations that lead to improved results.
Workers that lack commitment to their jobs, repeatedly indicate their attitudes are directly related to not knowing what is expected of them.
Performance goals, supported by the right performance metrics, will support the changes to improve productivity, task execution and superior business results. Not to mention higher levels of employee satisfaction and retention.
Six ground rules to create understandable performance metrics
#1 – Performance metrics need to focus on business processes NOT organizational units. Setting performance metrics by organizational group is more likely to create unintended results.
For example. A company set order accuracy goals and related performance metrics for their order-entry team. In an effort to meet these performance goals, the order-entry team spent more time double- and triple-checking the details of every order before releasing it to the fulfillment team. Seems like the thing to do – right?
Well, in this case it didn’t work out as planned. The order entry team spent so much time checking and verifying the details of each order that fulfillment and shipping were delayed. Order entry got their incentive, but guess who didn’t. The order fulfillment team. Why? Because they were measured on delivery schedule adherence. Delivery schedules were missed because the performance metrics for the order department sent the wrong message. Being accurate was more important than customer service.
#2 – Performance metrics need to reflect the customer’s point of view NOT just the company’s. A classic tale is one where the percentage of order line items shipped on schedule as a metric. Hitting a high line item fill rate doesn’t help a customer that needs all the items on their order to meet their needs.
Who is satisfied with a ninety nine percent order line item fill rate – the fulfillment team NOT the customer waiting for the last item to be received?
#3 – To be “understandable” performance metrics must integrate process activities with broader company initiatives. A goal to reduce expedited delivery costs may well save money in one area – transportation – but increase costs in other areas. Reducing expedited deliveries is great. However, what if inventory levels and material handling costs go up?
To be effective, performance metrics should answer the question “what are we trying to do?” as a company not a department or functional area.
#4 – Involve employees in the process of setting performance goals and metrics. Achieving understandable performance metrics will be easier when team members are directly involved.
After all, understandable performance metrics will define what good performance is! When results are reported against mutually agreed to goals and metrics, performance will be clear. No questions, no excuses.
#5 – Performance metrics need to align business process activities with the overall goals of the organization. Understandable performance metrics will help ensure that business process tasks support the overall mission and objectives of the business.
Remember, A vision without a task is but a dream. A task without a vision is but a drudgery. But a vision and a task together can change the world.
#6 – Performance needs to be monitored and reported on a “regular and timely” schedule. All to often, managers invest a significant amount of time and effort into establishing performance goals and setting metrics with their staff and then fail to followup. They get absorbed in the day to day work and neglect to monitor performance against the metrics. If the managers don’t show that the effort is important, why should the staff?
Effective performance metrics need to be based on businesses strategy and customer service goals. Metrics will drive changes in performance only when they are realistic, meaningful and understood by everyone involved.
However, just setting the metrics isn’t enough. Regular and timely reviews of performance against the metrics is essential. Follow up demonstrates that “improving” is important. Reporting results and making time to determine “what went right” or “not as planned” is key to improve productivity.