Key Performance Indicators - Parmenter David

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aid KPI projects I have, with Dean Spitzer's help, set out a chief measurement officer's job description (see Appendix B). I firmly believe that KPIs will only truly function when an organization commits to establishing and assigning some in-house talent into the chief measurement officer's role.

      Table of Performance Measures

      As with earlier editions I have provided over 200 performance measures in a table (see Appendix E). This table is a listing of performance measures to help start this process off. It will be a valuable resource when looking at performance measures during workshop sessions.

      Some of the performance measures in this list will be performance indicators (PIs), result indicators (RI), key performance indicators (KPIs), and key result indicators (KRIs). It is up to the KPI project team to ascertain in which of the four categories the final set of performance measures should be placed.

      Leading and Selling Change

      I have put much more effort in explaining this important area and have embraced John Kotter's work.7

      A Greater Emphasis on the Sales Process

      Many initiatives fail, not because they were not needed or meaningful, but because the hearts and minds of the senior management team, managers, and staff had not been engaged adequately. I have provided a full chapter (see Chapter 10) on selling from the preparation of an elevator speech to the compelling presentation to the senior management team. I have also included, in Appendix C, a section from my management book8 that covers over 25 tips to enhance “selling change” presentations.

      PowerPoint Sales Pitches

      To aid readers I have provided some free PowerPoint presentations on my website: KPI.davidparmenter.com/thirdedition.

      Electronic Media Available

      To support you implementing the strategies and better practices in this book, the following electronic media are available (some for a small fee):

      ● Webcasts and recorded presentations (see www.davidparmenter.com/webcasts). Some of these are free to everyone and some are accessed via a third party for a fee.

      ● A PDF of the checklists, draft agendas, questionnaires, and worksheets from chapters 8, 9, 10, 11, 12, 13 and 15 is available from (kpi.davidparmenter.com/thirdedition). The web site will refer to a word from a specific page in this book which you need to use as a password.

      ● The electronic versions of all the templates and most of the report formats, featured in the book, can be purchased from www.davidparmenter.com

      Acknowledgments

      I would like to acknowledge the commitment and dedication of Waymark Solutions staff members who helped me complete this and earlier editions, in particular Basil (diagram design) and Jennifer (proof reading). I thank my wife, Jennifer, who has been so understanding during my absences from family life when I was buried in my office finishing off another chapter.

      I want to thank and acknowledge Dean Spitzer and Stacey Barr for their thought-provoking contribution to performance measurement. To the paradigm shifters who have influenced me greatly (Peter Drucker, Jim Collins, Jack Welch, Gary Hamel, Tom Peters, Robert Waterman, Jeremy Hope): I will always be deeply indebted.

      I must also thank all those readers who, after reading this edition, decide to do something in their organization. I hope this book and accompanying templates help you leave a profound legacy. It is my fervent hope that together we can change the way leading organizations around the world, in all sectors, change the way they measure, manage, and improve performance for the benefit of all concerned.

      Part I

      Setting the Scene

      Chapter 1

      The Great KPI Misunderstanding

      Overview

      Many companies are working with the wrong measures, many of which are incorrectly termed key performance indicators (KPIs). It is a myth to consider all performance measures to be KPIs. This chapter explores how the four types of performance measures differ with examples of each type. The seven characteristics of KPIs are defined. The confusion over whether measures are lead or lag indicators is addressed. The questions How many measures should we have? and How many of each measure type? are answered. The importance of timely measurement is also covered.

      Many organizations are working with the wrong measures, many of which are incorrectly termed key performance indicators (KPIs). I believe it is a myth to consider all performance measures to be KPIs. From my research over the past 25 years I have come to the conclusion that there are four types of performance measures. These four measures are in two groups: result indicators and performance indicators.

      I use the term result indicators to reflect the fact that many measures are a summation of more than one team's input. These measures are useful in looking at the combined teamwork but, unfortunately, do not help management fix a problem as it is difficult to pinpoint which teams were responsible for the performance or nonperformance.

      Performance indicators, on the other hand, are measures that can be tied to a team or a cluster of teams working closely together for a common purpose. Good or bad performance is now the responsibility of one team. These measures thus give clarity and ownership.

      With both these measures some are more important so we use the extra word “key.” Thus we now have two measures for each measure type:

      1. Key result indicators (KRIs) give the board an overall summary of how the organization is performing.

      2. Result indicators (RIs) tell management how teams are combining to produce results.

      3. Performance indicators (PIs) tell management what teams are delivering.

      4. Key performance indicators (KPIs) tell management how the organization is performing in their critical success factors and, by monitoring them, management is able to increase performance dramatically.

      Many performance measures used by organizations are, therefore, an inappropriate mix of these four types. First I describe each type of measure.

      Key Result Indicators

      What are key result indicators (KRIs)? KRIs are measures that often have been mistaken for KPIs.

      The common characteristic of these measures is that they are the result of many actions carried out by many teams, hence the use of the term “result.” And they are good summary measures, hence the term “key.” They give a clear picture of whether your organization is traveling in the right direction at the right speed. They provide the board or governing body with a good overview as to progress with regard to the organization's strategy. These measures are easy to ascertain and are frequently reported already to the board or governing body.

      The fact that key result indicators are called KPIs creates a problem that many organizations do not appreciate. They cannot understand why performance ebbs and flows and appears outside the control of the senior management team. These key result indicators that are reviewed typically on monthly or quarterly cycles will only tell you whether the horse has bolted or not. Key result indicators are thus of little use to management as they are reported too late to change direction, nor do they tell you what

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