Producing Key Performance Indicators and Targets
This step identifies the key performance indicators (KPIs) that will be used to measure the organization’s relationship with the chosen stakeholder group. Businesses should use these KPIs to determine the degree of change from where the relationship stands today to where it will need to be in the future. This step also establishes the target performance level required for these dates and delivers a path for performance improvement over a period of time.
Refer to the right section in Figure 10.7 for an example of the knowledge produced as a result setting performance indicators and targets.
Techniques
The techniques of producing KPIs and targets are some of the most elusive to master, despite their apparent simplicity. Measurements can elicit strange behavior when personal objectives clash. Conducting the following measurements should be done with care and thought:
KPI analysis
Balanced scorecard analysis
Performance benchmarking
Negotiation
Consensus workshops
Lessons Learned
Based on the drivers and other documentation developed so far—especially the stakeholder values and expectations from the prior step—identify the KPIs for each stakeholder and determine the degree of performance improvement illustrated by each indicator. Consolidate all perspectives and create a set of future business targets that would be made possible by the transformation program’s successful completion.
For each value and expectation of each stakeholder, consider indicators of efficiency, effectiveness, and adaptability.
How will these measures be obtained? If the measurement process is obtrusive, the act of measuring will affect the measurements as people change their behavior during the measurement activity.
Determining the appropriate KPIs for each relationship looks easy on the surface but, in reality, is fraught with difficulty. Numerous measures are important, but many of them don’t truly reflect the required results.
Information about your current true costs might be available through your financial management group if they’ve conducted any activity-based cost studies. Ask the group to share early in the game.
The approach at this point closely tracks to that used in Kaplan and Norton’s balanced scorecard. KPIs identify the need for measures beyond the financial ones for shareholders or owners; you’ll probably also need to measure leading prognostications. These include a consideration for customer measures, process quality, and innovation and learning. In my experience, the stakeholder approach reaches beyond the balanced scorecard to link more closely to deliver performance to all those who care.
Because traditional financial measures, such as return on equity or assets, tell us only the equivalent of the score of the football game after it’s over, it’s key to have more leading indicators if we want to know how the game is going and what we should do about affecting the outcome before it’s too late. A coach must know how the players are performing and make adjustments, if necessary. A business must know how the opposition is responding to its game plan and change strategy, if that’s called for. Organizations must learn what’s working and exploit the opportunity while they can. You can’t win a game with actions after it’s over—you need to know what signs to look for before it’s too late.
One way to assess how large a change is required is to conduct a performance benchmarking exercise to see how a business compares with its peers. The invaluable aspects of this approach are that it’s external and factual, and can’t be disputed except at the organization’s own peril. It gets management to move on the areas of stakeholder measurements with the biggest gaps and cut through the internal politics that often stand in the way of change. It’s often difficult to get comparative measures but often worth the investment.