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Conventional wisdom tells us a few things about establishing key performance indicators. It goes something like this: Determine your corporate goals. Identify metrics to grade progress against those goals. Capture actual data for those metrics. Jam metrics into scorecards. Jam scorecards down the throats of employees. Cross fingers. Hope for the best.
In an episode of the TV series "Undercover Boss," Waste Management president and COO Larry O'Donnell walked in the shoes of his employees for a few days under the guise of an alternative identity. He discovered firsthand the effects his KPIs had on employees. Specifically, a productivity and efficiency KPI convinced one of his "co-workers for a day" that to satisfy her production quota she needed to urinate in a coffee can to save time. As a truck operator, stopping to find and use the restroom adversely affected her performance grades. Therefore, she decided it was more efficient to use a coffee can she kept with her in the vehicle. O'Donnell later acknowledged that this was not what he had in mind when he selected the KPI.
What happened here is not uncommon: Well-intentioned executives attempted to establish goals and track their progress. This is perfectly reasonable. In fact, the intent is downright expected. Unfortunately, the events that follow frequently turn into a twisted game of telephone. Many would argue the cause for this scenario was a failure in communication. Maybe the communication plan was ineffective, or maybe the organization neglected to support the specifications of the plan. Worse yet, maybe there was no communication plan at all.
Although a well-defined and executed communication plan is essential, that alone does not solve problems related to establishing KPIs. Communication problems are merely friction. Although that friction can be strong enough to prevent an intended execution, reducing that friction alone does not guarantee success.
Core Attributes of Effective KPIs
Many organizations have adopted a specific approach for establishing KPIs. It is called the SMART criteria technique, and in a nutshell, it requires that a KPI must satisfy these five criteria: specific, measurable, attainable, relevant and timebound. "S-M-A-R-T" is a fine way to spell KPI, as this a solid framework for making decisions about KPI selection.
Unfortunately, organizations still find themselves unsatisfied with the results...