Using KPIs to Keep Performance Improving

Using KPIs to Keep Performance Improving
By Mike Toten

Key Performance Indicators (KPIs) are used by organisations both to measure individual employee performance and to measure overall organisation performance.

This article covers their use for individual employees.

The Importance of Being SMART
The acronym of SMART frequently appears when commentators discuss KPIs. It means that KPIs need to be:

• Specific
• Measurable
• Agreed to
• Realistic
• Timely

More recently, there has been a trend to turn SMART into SMARTA, by adding the requirement that KPIs be 'Aligned'.

This is an important addition, particularly where KPIs are also used as an organisation-wide measure. Each component of SMARTA is explained in greater detail below.

Specific
KPIs need to be specific to the individual job and if possible expressed as statements of actual on-the-job behaviours.

You need to go beyond terms such as 'work quality', 'job knowledge', 'standard of customer service', 'accuracy' and so on, which are too vague to be of much use.

Other 'specifics' an indicator needs to achieve include:

• explaining clearly to the employee what he/she has to do in terms of performance to be 'successful';
• having an impact on successful job performance, that is distinguishing between effective performance and ineffective performance; and
• focusing on the behaviour itself, rather than personality attributes such as 'attitude to customers'.

Measurable
KPIs must be quantifiable to a large extent, that is based on behaviour that can be observed and documented, and which is job-related. They should also provide employees with ongoing feedback on their standard of performance.

Some degree of compromise may be necessary, however, to ensure you 'cover the field' regarding job performance.

Some aspects of performance are easy to measure, such as financial and work quantity measures, and it may be tempting to prepare a list of KPIs that focuses mainly on these aspects.

If the more subjective but still important aspects are overlooked, such as people management skills or customer service levels, employees will be unlikely to pay as much attention to them.

Agreed to
Always remember that performance management needs to be an open, two-way communication process. KPIs that are imposed on employees without genuine prior consultation are risking failure, the best you can usually hope for is some level of 'compliance'.

If you can't involve employees directly in developing the KPIs, at least try to obtain their agreement before imposing them.

It is essential that employees clearly understand the KPIs, and that they have the same meaning to both parties. Also, consultation is more likely to result in standards that are relevant and valid.

Realistic
Several points are relevant here:

• The employee must have a significant degree of control over achievement of the KPI.This is not the case when there are issues such as insufficient resources to do the job, 'lemon' products, bad organisation reputation, IT problems, etc. Make at least some allowance for such problems where they occur.
• The KPI must be realistically achievable. If it is set too high for the prevailing circumstances (such as an ambitious sales or production target or deadline), not only will it be irrelevant but if action is taken against the employee for failure to achieve it, legal issues may arise, such as an unfair dismissal claim.
• Also make allowance for the realities of the work environment. Most jobs are clogged, to varying extents, by routine administrative tasks that take time. Nor is every aspect of most jobs predictable or assessable. The prevailing circumstances described above also have an impact.
• KPIs should emphasise the nature of the job as well. If the outcome of the job is its most important aspect, emphasise actual results. If the process is most important, focus on actual behaviour and performance methods. If what the employee 'is' on the job matters most, focus on personal aspects, such as management style, interpersonal skills, 'team player' attributes, risk-taking, etc.

Timely
KPIs should have an appropriate time frame.

It should be possible to collect the relevant information either 'as it happens' or within a short time afterwards, otherwise it will lose its relevance. This is also another argument in favour of keeping the process simple.

Aligned
Individual KPIs need to be directly linked to organisation goals and objectives, or overall organisation KPIs where they are used.

They need to reflect organisation culture and values, by indicating the types of behaviour and performance the organisation will recognise as 'successful' and reward employees for.

As outputs of the performance management system, KPIs also need to be in alignment with other HR-related functions, including training and development, recruitment and selection, rewards and recognition, and career planning.

Scope of KPIs
Even with the SMARTA parameters described above, the scope of potential KPIs is very wide. The following list is by no means exhaustive, but provides an indication of the range of issues that can be adapted to KPIs:

Work quantity, productivity, work quality, time (eg deadlines, response, delivery, turnaround), revenue, return on investment, consistency/reliability, safety, environmental impact, use of resources, cost-effectiveness, management style, turnover/retention, promotion of diversity, workplace relations, training and development, communication.

Training required
Training of participants – both those who appraise and those who are to be appraised – has been shown to be influential to the success of performance management activities.

The training process should cover the steps involved in researching, identifying, developing and communicating KPIs, using the SMARTA principles.

There is a range of commercial providers, products, seminars/workshops, etc available for those who require assistance.