Tuesday, November 3, 2015

KPIs Are Not Targets – Or Do You Really Want What You (Didn’t) Ask For!

ByHarald Stuhlmann, Oct 5.

Would you take the passengers and bags off the plane to save fuel? Hope your favorite airline doesn’t start to target YTK[i]. Would you cut off a leg to lose weight? Make sure your doctor doesn’t preach BMI[ii]. Would you settle the bill before you even see the menu? Ask your waiter about their ARPT[iii] goal instead of the daily special. They may have forgotten, doing anything right (KPI[iv]) only helps if you are doing the right things (target). Get them wrong and nothing will go right.

In case you have never heard of KPIs, don’t count yourself lucky just yet. Your life is still being made difficult every day because of all the people who insist KPIs and targets are interchangeable. But the name KPI says it all: Indicators tell us direction, not destination. The politician, Dan Qualye, was notorious for pointing out the obvious, for example, “A low voter turnout is an indication of fewer people going to the polls.” That indication may be valuable, but the explanation is useless. Your next meeting should also prove the point: Most agenda topics will receive an arbitrary time allotment – to achieve efficiency. And the result? Just when the discussion gets going, everyone has to leave for lunch! Purpose is achieved not through the message, but by squeezing minutes. Agendas cannot vindicate a poor meeting anymore than voter turnout will lead to better politics.

This happens everywhere, everyday. Too many meetings and we realize we have to “do something about our health and shape”. The first thought: lose weight. Then we count our calorie targets, and for the technically more ambitious, exhaust ourselves in a target ‘pulse-zone’. And the result? Fitness studios generate 60% of their revenues in the first few months of the year, and the remainder of the year is as meaningful as a vacated meeting room or empty plane.

Be honest, have you ever bought a camera by its MPR[v], a washing machine by the RPM[vi], or a car by its MPG[vii]? Do any of these KPIs tell us anything about how spectacular your next vacation photos will be, how sparklingly white your wash will shine, or how quickly you will get back to work? Robert Kennedy admitted as much. Remember his famous 1968 speech that GDP[viii], “measures everything except that which is worthwhile!” Today many developing countries are worse off from international efforts to boost their wealth because, in the words of Kennedy, “we seemed to have surrendered personal excellence and values in the mere accumulation of [GDP that] counts air pollution and cigarette advertising, and ambulances to clear highways of carnage. It counts special locks for our doors and the jails for the people who break them, [but] does not allow for the health of our children, the quality of their education or the joy of their play, [anymore than] the intelligence of our public debate or the integrity of our public officials.”

Should we target a ban on KPIs? Only if we want to make things even worse! All the above indicators have helped significantly increase performance and quality – but only where they were used as indication, and not to vindicate a lack of clear targets. Too many managers push for success by setting targets by KPI, such as FPY[ix], OEE[x], ROS[xi], etc. We might as well put the cart on top of the beast, instead of just in front of the horse, because only targets are designed to define the right things to do, not KPIs. For example, if we want to achieve a high utilization of our capacity, we must first establish the desired output and then define the necessary, underlying conditions, such as the number of operators, cycle and lead times, as well as amount of allowable downtime. Above all, we need to cascade these conditions to those who actually have to make them happen: Tell them what you want, not what to do! Then we can begin to use KPIs to measure progress – as an indication whether we are doing these things right. With clear targets, we can also ask what is preventing us from achieving those target-conditions, instead of re-calibrating KPIs. (Ever notice where the targets are wrong, people argue whether the numbers are right?)

Without clear targets and only KPIs, we see things as they are and not how they should be. Under-performance becomes obvious, but not clear. What is obvious only tells me what’s in front of my nose, but clarity allows me to see beyond the obstacles. Clarity is where people can understand how the target effects them and how they can impact the target. George Bernard Shaw was more poetic, "Some people see things as they are and say why? I dream things that never were and say, why not?" Otherwise we see the right KPIs, doing all the wrong things.

[i] Yield in Tonne-Kilometers, used for cargo to measure profitability of weight transported
[ii] Body-Mass Index, ie weight in relation to height
[iii] Average Revenue Per Table, as measure of sales generated by guests serviced
[iv] Key Performance Indicators, ie for indication of how two or more variables perform in relation to each other, either to see if they increase together or if one increases or remains constant with less of the other
[v] Mega-pixel Resolution of the camera sensor, the detail captured by the picture-sensor
[vi] Rotations per Minute of the drying spin cycle
[vii] Miles per Gallon, as indication of average fuel consumption
[viii] Gross Domestic Product as indicator for the performance of a national economy
[ix] First-pass Yield as indication of number of units produced as output in relation to units required as input
[x] Overall Equipment Effectiveness, shows the operating production time of a manufacturing line or equipment in relation to the determined optimum availability
[xi] Return on Sales, measuring profitability normally as EBIT (Earnings before interest and taxes) in relation to the sales generated

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