Sally is a new COO at Kratos Corporation. She has just attended the first KPI (key performance indicators) quarterly review since joining the company two weeks ago and is feeling a little deflated. Customer satisfaction measures were missed, marketing displayed a dizzying number of measures, and operating margins were trending downwards.
Sally had led the setup of KPIs from scratch for her previous organization and utilized them as a powerful tool to track success and drive action. While Kratos had followed many best practices such as incorporating financial and non-financial measures, leading and lagging indicators, and SMART goals, there was an opportunity for Sally to demonstrate how to better leverage KPIs to drive success. This was not a case of “KPI 101”, a deeper look would be required.
The development of a KPI logic model can be an excellent tool to examine Key Performance Indicators and ensure that what is measured drives the right outcomes and the right actions. KPI should tie to the organization’s strategic objectives and measure success against strategy. A KPI logic model is a visual representation which links inputs, actions, outputs and outcomes and can also extend to impacts.
- Inputs: are resources (people, financial) which are used to deliver activities.
- Actions: are what the organization does including processes, actions, initiatives, projects, programs.
- Outputs: are the direct work-product of the activities being conducted.
- Outcomes: are intended results and reflect the effectiveness of the outputs.
While activities and outputs often have a one-to-one mapping, multiple outputs map to intended outcomes including immediate and long-term outcomes. Finally impacts can be thought of as relating to the mission of an organization. They are not a direct result of outcomes but are influenced by them as well as being subject to external conditions.
The examples shown below are illustrative and will vary from industry to industry and change based on the lens being applied whether it is a corporate, divisional or functional lens.
Here are three questions which Sally can consider when examining the model above:
1. Are KPIs measuring the right things?
The outcomes being measured are effective measures of success and should align to strategy. They act as beacons to align the organization around what success means and how it can be measured. They measure the effectiveness of the outputs in realizing success.
Output KPIs such as a market share should also be supported by nearer term output measures which more directly map to the results of the activities of the organization. Is Sally measuring the right combination of outputs and outcomes?
2. Is the organization conducting the right activities?
The KPI logic model is a cause-and-effect model which can reveal activity gaps or superfluous activities. As KPIs evolve over time, changes in the activities of the organization may be necessary. This can include stopping activities or investing in new programs, new geographies, creating new areas of development or launching new products.
For example, an organization which aims to improve customer experience invests in new technology to understand customer sentiment. Activities are implemented to successfully deliver the new voice of the customer system, but that alone does not lead to the desired customer experience outcome. Why is that? What are the factors impacting the desired output? Should this system be coupled with continuous improvement activities that act on the customer insights?
3. Does the management team understand the why behind the KPIs results to facilitate decision making?
KPI’s are indicators and do not give the full picture of success, especially when considering the mission of the organization. They do not tell Sally why some of the KPIs targets were not met. They do not tell her which outputs are most critical for influencing outcomes. An understanding of what is behind the KPIs will be necessary for problem solving and root causes will require more data. The model can be a starting point for understanding the relationships between what the organization is doing and what it is achieving.
While Kratos and Sally represent an amalgamation of insights and experience across a multitude of organizations, the three questions can be readily used to test organizational KPIs using a KPI logic model as a guide. Overall organizations can benefit from a critical examination of their KPIs, especially when timed with strategic reviews to enable traction against strategic objectives.
About Rana Chreyh
A senior executive, professional engineer, and Ivy league executive MBA business graduate with over 25 years of accomplishments in technology and business domains. Rana’s experience includes strategy development and implementation and large-scale solution delivery including for not-profit, technology start-ups and global fortune 500 companies. Rana Chreyh is recognized for her ability to seamlessly transverse and integrate business and IT strategy due to her broad and deep experience with industry expertise in technology, medical device, HealthTech and healthcare. As Practice Leader, Management Consulting at Stratford, Rana will bring the team’s expertise to the table to meet your specific needs.