KPI’s – everyone is talking about them, most of us use them, but few of us are using them very well. We have all had mixed experiences and suffered from unintended consequences. Designed to help performance, but sometimes acting as more of a hindrance, it can be an uphill struggle to make KPI’s work better for us and help our teams and organizations achieve their best.
At our recent webcast of over 250 P2P, S2P, and other process owners we covered a wide variety of topics around context, challenges and recommendations for KPIs in the Purchase to Pay Cycle. We also were able to gather some interesting insights into the current state of play from our attendees through the poll results which we will share with you below.
We started out by examining the role of the GPO in relation to KPIs. It is clear that depending on how your organization defines the GPO role, your focus will differ and thus have an effect on your KPI’s, the ones you choose and how you set them. They can help the GPO in knowing the current status of the business process, as well as helping to plan for tomorrow – the distinction between managing today and leading tomorrow, an idea taken from John Kotter.
For more on this we also hosted a webcast earlier in the year with the former P2P GPO at BP, which you can find here
We discussed the different type of KPIs, leading (performance drivers e.g. what percentage of invoices are electronibc) and lagging (performance measures, e.g. cost per invoice), and the need for balance between the two types, as well as giving some benchmarking statistics (although remember to take these with a pinch of salt!)
We took a number of polls throughout the webcast, with some interesting results! 50% of attendees answered that they were using KPI’s to drive continuous improvement, HOWEVER 56% answered in the subsequent poll that they were primarily using lagging KPIs. Now, the expected correlation would be that if so many are using KPI’s in a continuous improvement cycle, they should be using a healthy balance of leading and lagging KPI’s, or potentially there would be more of a lean to leading indicators. But over half are primarily using lagging – a confusing result, perhaps demonstrating that whilst the intention behind people’s KPIs is to achieve continuous improvement, the reality is there is a disconnect between the expectation and the action or outcome – measuring success, instead of driving improvement.
Having learnt from your experience and other similar organizations, we split the main challenges into three. These three come up time and time again, causing the most trouble as well as being the most difficult to reconcile.
The three c’s – conflict, compensation and consequences.
Conflict – where the achievement of one KPI target directly undermines the achievement of another
Compensation – consider the implications of personal compensation being directly related to KPI performance, and ‘unnatural’ behavior to achieve those KPIs
Consequences – The unintended consequences/ripple effect that cause more problems than the achievement of the KPI target is worth
In another poll, we asked ‘how effective and institutionalized are your KPIs?’ The largest answer was 48% with not yet well designed or implemented, but a big mixture across the board for those whose KPIs are effective but not institutionalized, and well embedded but not effective. We hope our following recommendations had something in them for everyone.
The recommendations are based on lessons we have taken from working with many of you and from our public workshops:
Communication is key – KPIs can often create the effect of the “Emperors New Clothes”, but its crucial that questions are being asked, upstream, downstream, across departments, ensuring stakeholder alignment. Discuss your KPI’s before you set them and ask about the effects on others.
Work backwards and focus on behaviour – start with the outcome that you want the KPI to achieve, then think about the behaviour you want to drive to achieve that outcome, and then think about the KPI last.
Use analytics – as the next step after setting performance measures and identifying exceptions. The right analytics will enable a cycle of continuous improvement to help make your KPI’s work better for you.
Remember the magic of small numbers – 97% going right but that 3% doesn’t necessarily represent 3% worth of effort/cost/work. Chipping away at small numbers can have a big impact.
100% is not the ultimate goal – you should beware the trap of aiming for 100% as the ultimate goal, 100% is a suspicious number.
The watermelon picture? You better listen to the recording to find out about that one! For access to the full recording, click here
Thanks for reading . . .