Performance measures: Tying goals to execution

How executable are your key performance indicators? If they aren’t specific, measurable and clearly communicated, they may not achieve the results you need.

By S.E. Slack

In business, it seems like someone is always setting a goal somewhere. “Increase Product A sales!” “Decrease manufacturing costs!” “Insure the XYZ bill passes in Congress!” Those goals sound impressive, don’t they? Everyone wants higher sales, lower costs and a beneficial political environment.

Actual implementation of those goals is a completely different ballgame. That’s where effective key performance indicators (KPI) are critical. A KPI is a performance measure that specifies an emphasis intended to produce a desired result. It typically represents a value, status, trend or goal – or some combination of these things. KPIs are typically established at the top levels of a company as part of the organization’s overall business strategy and communicated out to employees at all levels.

Get specific: Think like your employees

For every KPI established by an executive, imagine an employee saying, “How am I supposed to do that?”

Left to their own devices, employees will get the job done. The question is, how will that job be done? Will sales of product A increase as sales of product B erodes? Perhaps sales are increasing because employees are offering discounts - that’s not good news for revenue numbers.

The trick to avoiding these unexpected results is to think like your employees. Ask yourself the same thing your employees do when given new goals and objectives: “This requirement will be met if I do what?”

“This fill-in-the-blank kind of question evokes a level of specificity that makes it almost impossible for an employee to misunderstand the goals and objectives at hand,” says Francie Dalton, president of Dalton Alliances. “If you really want key performance indicators executed flawlessly, your employees must know exactly how to meet or surpass your expectations.”

If there is more than one answer to the question, add supporting objectives to your KPI until there is no room for confusion at the execution stage. For example, “Increase sales!” would change to: “Increase sales of Product A by ten percent while maintaining sales of all other products at current levels and improving revenue by 2 points.”

That’s pretty clear – and not subject to interpretation by employees simply trying to make you happy and keep their jobs.

Stay on top of progress toward the KPI

It’s tempting to dictate a KPI and assume it’s being accomplished, isn’t it? But that attitude often leads to surprise at the end of a fiscal year. Instead, scrutinize progress toward the KPI by setting milestone dates and expectations.

If you’re willing to give employees 12 months to reach that sales goal, for instance, track it monthly – not quarterly. Let them know you are expecting a one percent increase each month, for example. This gives everyone room for a slow month but reminds them that a continued upward trend is expected. Plus, it allows you to spot execution problems quickly. If two months go by with a decrease in sales, for instance, you can get to the sales leaders quickly, determine the cause and readjust your approach if necessary.

Are you unconsciously sabotaging your KPIs?

There are two ways businesses unconsciously sabotage execution of KPIs. The first is the failure to anticipate the radial impact of a KPI; the second is failure to respect the expertise of your subordinates. Both of these make it nearly impossible for employees to successfully execute a KPI because their control over the situation is limited.

Anticipating the radial impact of a KPI means making it clear to your employees that executing the goal in one department cannot be done at the expense of another department. For example, the sales team makes the biggest sale of Product A in the company’s history . . . with just a slight modification to the product. However, the manufacturing department doesn’t have the equipment to make the modification without purchasing a new part – which completely changes the cost of the product, increases manufacturing expenses and reduces overall revenue.

Obviously, that large sale met your KPI but it completely ruined manufacturing’s revenue and expense KPI goals.

Respecting the expertise of your subordinates may seem simple, but ask yourself these questions: I hired this person because I trust him – why am I not agreeing to his request for XYZ if he says he needs it to meet the KPI? Am I giving this person the proper authority to get the job done? Is the outcome of this KPI really something this employee can control?

Often, the best way to determine whether you are preventing success of a KPI is to think like a saboteur: What if a key staff person quits? What if a key competitor buys out another key competitor and their combined strength outsells your company? What if a new product comes along that makes your product obsolete?

Assuming something will happen to blow your goals out of the water and having a fix-it plan before that happens will allow your KPIs to be completely effectively, no matter how many obstacles pop up.

Dangle the carrot or use the stick?

You never want to hear “Sorry we didn’t meet that sales goal, boss . . . what’s our goal for next year?” But that’s what will happen when KPIs are set without corresponding accountability expectations and a rewards system. A crippling atmosphere of mediocrity ensues.

At the same time, employees don’t execute well in an atmosphere of fear. What to do? Use facts for accountability expectations and make achieving the KPI worthwhile for every person in the company.

For example, anyone who is directly responsible for the outcome of a KPI should know whether failure to execute will result in the loss of a job, a bonus, a company car, exclusions from the holiday party – whatever you feel appropriate. Equally important is communicating the reward to be provided when a KPI is reached: A bonus will be extended, an extra day of paid time off will be given to every employee, a catered lunch will be provided, etc.

Open communication with employees at all levels is critical to ensuring goals are executed on time and with integrity. Be specific, check your progress often, give your employees the ability to succeed and clearly establish accountability and reward expectations. The results you need will follow.

S. E. Slack is a writer and author with more than 17 years of experience in business writing. She has written numerous articles for small- and medium-sized businesses, appearing internationally in business magazines and online business sites. She has also been an executive and business transformation communications consultant to IBM, Lenovo International, and State Farm Insurance Cos. Her books include The Financial Advisor's Guide to the Microsoft Office System, The Accountant's and Auditor's Guide to the Microsoft Office System, The Financial Analyst's Guide to the Microsoft Office System, and A Public Relations Survival Kit.

Related links:

Tying Department KPIs to executive level goals

Defining and Capturing your KPIs (QRC)

Framework for KPIs (template)

Creating a sound KPI framework strategy

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