It is over 15 years since the concept of cascading KPIs and the balanced scorecard became a hot topic in business circles and still a lot of companies feel that they don’t do this well and need to improve their own measurement capability.
It is our belief at TCG that the reason for this is that many businesses are spending too much time focussing on the hard mechanics of KPIs and have lost sight of some of the nuances that make good KPIs a great business tool.
First of all KPIs should be inspiring and act as a real call to action. Having done work with both Tesco (‘As big in non-foods as foods’) and BSkyB (‘10 million customers by 2010’) I have seen how a top level target can really galvanise a business and give it a sense of purpose.
However, more than that they served to empower the middle management level who knew how their own targets and recompense fitted to the attainment of top-line goals. These high level KPIs served as great arbiters for decision making and resource allocation and really made the business tremendously efficient.
Secondly, companies focus on getting their KPI definition and data sources 100% right for their current business model and capabilities. This means that they spend far too long getting the KPIs implemented and ready for use, often making them out of date from day one, and also after usage and understanding grows in the business they are not quite right and need to be re-defined, re-sourced and re-hardcoded, and so the cycle continues.
Instead – focus on a problem, grab some data, grab some decision makers and start using rough and ready KPIs quickly, this will generate real business benefits but will also improve our understanding of how good KPIs work and how you can really use them to drive your business. A KPI culture will soon spread as business areas see what KPIs can do for them.
Finally, the role of trust and focus is often overlooked. Execs try to look at all the cascading KPIs that tie in to a particular target. This can be a massive burden on valuable senior management time and this author has witnessed more than one board meeting where the definition of a level 4 or 5 KPI was discussed at length rather than focussing on what the overall trend was telling them about their business. Design your cascade so that the proxies at each level give the correct platform for the next tier and let the people you trust own those building block KPIs.