Since KPIs change over time as you create new plans and set new goals, your KPIs also signal whom you want to be in the future. If you think you should go into 2017 with the same old metrics, stop and think again.
It’s time to reflect on where you’ve been and where you’re going, factoring in business and market conditions, and looking for ways to capitalize on both continuous improvement and disruptive changes. Your KPIs must align with, support, and drive your OpEx and overall organizational vision.
Just as you set other SMART goals throughout the organization, you need to create KPIs that are challenging but achievable as you plan for the future.
It’s important to remember that what gets measured gets done. If you can’t find an effective way to measure something, you don’t have a way of verifying that improvements are occurring. Perhaps even more importantly, without effective metrics in place, people across the organization don’t have the feedback to know if they are on the right track or need to make corrections.
In a high-performance organization, people will work very hard to achieve specific goals that are set before them. They will be motivated by the progress they see as these metrics improve. KPIs may be formally tied to compensation, be rewarded with social recognition, or simply be in place for teams to strive for personal bests.
If you pick a metric that sounds reasonable but is not exactly what you truly need to achieve, people will still try to deliver to meet that metric. Remember: What gets measured gets done. This slight misalignment can sometimes lead to very dysfunctional behaviour.
Picking the right metric is important to ensure the results you want.
This question does not yield an “it depends” or either/or answer; good KPIs are a balance of both activities and outcomes. As an example, an activity-based metric might be the number of projects completed, while the associated outcome-based metric might be the cost savings from those projects. The two go hand in hand.
Despite best intentions, a quality goal to deliver a “right the first time” product drives so much additional planning, testing, and work-in-process waste that overall delivery and cost performance declines. Conversely, increasing the focus on delivery or cost leads to declining quality.
The operational areas of the business set last-minute goals as they negotiate next year’s deliverables, but OpEx is setting its goals using its OpEx vision aligned with now outdated operational plans.
Since OpEx is often seen as the people side of the business, OpEx goals frequently involve areas of employee satisfaction, culture, and other “hard-to-measure” areas. To be effective, goals in these areas can’t be just “feel-good” sentiments, but must be able to be quantified and monitored on an ongoing basis.
Too much focus on behaviours can drive employees to look for frequent "attaboys" without thinking about results. Too much focus on results can lead people to take shortcuts or adopt an “ends justify means” approach to goal achievement.
Imagine a system set up with a metric of “average days for project completion.” That may work for projects that are similar in complexity and flowing smoothly. But the completion of an important but difficult project that has appropriately taken much longer will make this metric show a decline in performance upon completion rather than the uptick the work deserves.
Creative OpEx practitioners know that they can find a way to measure anything…and they do. However, KPIs must be the key
That means only one to three KPIs for each strategic objective.
In striving to get the perfect KPI for a strategic objective, a complex and artificial weighted aggregate of lower-level objectives may be rolled up, resulting in something that no one owns or can even understand.
The general function of an OpEx organization is to create a sustainable competitive advantage through superior operations management. If the right vision is set and has aligned strategies, appropriate KPIs will be critical in driving those strategies.
Establish and test your KPIs with input not only from the OpEx team but also from business functional stakeholders. Use a vertical slice to ensure that the metrics at the highest, aggregated levels both align with actions across the organization and can be easily understood.
Communications about OpEx performance are going to center on your KPIs, so be sure they are clear, concise, and effective.
The metric-setting process deserves concentrated focus and adequate time, but it doesn’t have to be difficult. Use the process expertise that resides in your OpEx organization to drive a stellar KPI-setting process. A standard work approach to setting metrics can deliver a simple and effective process.
Your OpEx strategy must clarify exactly what needs to happen in order for the OpEx function to progress against its vision and make your business successful. In parallel, your OpEx KPIs must support that strategy. In today’s digital world of rapidly changing opportunities with disruption in both technologies and operational models, your business is likely to be highly transformational. To be effective, your KPIs must be living, breathing, and evolving in lockstep…or a step ahead.