In the first blog post on KPIs, I explained why limiting management’s strategic planning to high-level goal setting is doomed to failure. For strategic goals to be realized, they have to be translated into daily KPIs that are meaningful to everyone in the company.
At TBM, we approach this goal deployment process in three parts:
- Cascade from the Top, Plan from the Bottom. Goals always start at the top with company-wide annual objectives. But when it comes time for deployment, business leaders must think from the bottom-up on how the organization as a whole is going to meet those goals. Take the five percent corporate cost reduction target as an example. Management's first task is to break that figure down into enterprise-wide actions and the specific tactics required to achieve it at the front-end of the business. In this case business leaders might project that a five percent cost reduction for the company would mean $4 million in cost reductions in manufacturing. Looking deeper, they would dig down and determine that, in order to achieve the $4 million in savings, in addition to everything else they plan to do (such as restructuring); they need to improve labor productivity by a certain amount.
Based on the analysis of potential gains, the KPIs for each plant and production line may be higher or lower than the overall productivity gain, but they would collectively flow upward to achieve the target for manufacturing. In addition to labor ratio reductions, achieving the productivity targets for each line might require higher up-time, which would require faster setup and changeover times, and more diligent maintenance practices. These would all require another layer of daily KPIs and goals.
- Make Detailed Action Plans. Once the lower-level KPIs and targets have been identified, you need to develop specific action plans as to how you are going to achieve the targets. Focusing attention on an area by measuring it may improve performance in the short term, but concrete process changes will be required to make improvements that can be sustained. To achieve the goals you need to spell out the specific actions that are going to be taken, who owns those actions, and when those actions are going to take place. Having a specific timeline in place allows business leaders to track progress in terms of activities completed and results achieved. You want to avoid the “hockey-stick effect” when there’s little progress throughout the year until the final quarter when everyone suddenly gets to work in order to achieve the annual objective. Sustainable, transformative changes can’t be made that way. You need to drive our action plan forward from the start of the year to yield results in the first month and subsequent months all year long.
- Measure and Countermeasure. To keep the organization on track toward the corporate targets, business leaders must have some way of reviewing actions and results on a monthly basis. A quick dashboard view, for example, might show red, yellow, and green status for projects and goals. This is not a passive exercise. During these monthly reviews, managers must stay vigilant to any sign of trouble. The numbers may be green today, but there may be signs that in the next month or two it could go to yellow or red. These monthly reviews should not become problem-solving sessions, however. When you look at the KPIs, you should expect to see the targeted results. If countermeasures are needed, business leaders need to know ahead of time what actions are going to be taken and what the results will be over the next 30-day cycle to achieve the targeted results.
On the other side, managers must have the freedom to react quickly to problems before they become larger issues that delay progress. This review process includes over-performance as well. If leaders see an area where they’re dramatically exceeding expectations, they also need to react. Maybe they can leverage those over-performing resources somewhere else in the business, or cascade them across the business to get better results. Finally, all of the KPIs and goal deployment activity must be visible to the entire organization. It needs to flow back up into higher-level monthly roundups that summarize the impact and tell business leaders if everything is going according to plan at the top level. And, if not, what’s being done to get back on target.