Working In Uncertainty
Participation and Key Performance Indicators (KPIs)
by Matthew Leitch, first published 14 December 2007.
This article is about involving people from multiple organizational levels in selecting and revising Key Performance Indicators (KPIs), specifically to benefit from knowledge sharing. Involvement in KPI selection is often driven by negotiation about targets and related pay, but negotiation is not addressed in this article.
The main reasons why you might want to increase knowledge sharing participation in selecting KPIs include:
Organizations run by centralized command and control may struggle to make this work well, while organizations that tie performance pay to achievement of performance targets that are set in advance limit their freedom to change KPIs.
That does not mean that performance tied to achieving fixed targets is entirely incompatible with participation. One reason for using participation to share knowledge is to compensate for certain problem areas that may arise with target based pay. If it is difficult to measure something that is important to performance, or if people need to be reminded of long term implications of their actions, then motivation by rewarding performance against targets may not work well on its own. Participation is a complementary way to get people thinking and caring about what really drives performance. In organizations that do not pay for achievement of targets it is participation that needs to do most of the work.
If you want to empower employees while still leaving an active role for the leadership team then participation of the kind suggested here should be of interest.
Where is the uncertainty around KPIs?
It may be obvious to you already that there is uncertainty around KPIs generally, or specifically around the KPIs of your organization. Perhaps there is work being done now to select KPIs, with ideas sought from anyone who might be able to help. Perhaps KPIs were selected some time ago but increasingly people are questioning whether they are appropriate.
Alternatively, it may be that a set of KPIs has been selected and generally people feel that they are a good choice and not about to change. Even so, there is some important uncertainty to consider, for these reasons.
A set of KPIs amounts to a theory about what drives performance. It says ‘If we can improve performance on these KPIs then that's a good thing.’ What ‘good’ means is itself one of the hardest things to be certain of and is also part of the KPI set because, typically, some KPIs are thought to be drivers of others, and some are considered the nearest thing to an ultimate measure of success.
But, what drives the KPIs? Sometimes it is thought to be other KPIs, but not always. The things that drive KPIs are themselves candidate KPIs, and what in turn drives them? At some stage the thinking typically goes from confidently selected KPIs to tentative theories about how things might work and what perhaps could be measured.
Uncertainty is found on the boundary of even the most obvious and well established sets of KPIs. It is often the case that management teams at some levels feel they have a solid set of KPIs, but management teams at other levels do not.
Typically, our tendency is to behave as if we are more certain than we really are or should be. Perhaps a critical review of existing KPIs would reveal more doubts, alternative theories, and potential opportunities for improvement than are currently acknowledged.
Given that some degree of uncertainty exists, at some levels, at some times, it follows that we should be looking for better ideas and that our commitment to a particular set of KPIs should last only until we have a better set we can implement.
In view of the difficulty of understanding the world, knowing what will make us successful, and making strategies, I do not think it is reasonable to be unconditionally committed to:
Nor should leaders expect people to commit to these relatively short lived and uncertain choices. Instead they need to be continually under review. Becoming attached to them could be a problem.
However, it is reasonable to commit to:
From this point of view, a leader in an organization should be happy to work with people who go with these principles. The temptation to try to persuade people to commit to particular sets of goals, strategies, and so on should be resisted. However, leaders should expect their input to be listened to carefully because of their high ability to contribute.
The value of sharing knowledge
Considering uncertainty also helps to explain why participation can be so useful. The uncertainties around KPI choices are different for different people because of their knowledge.
Participation does not have to involve everyone, but there are reasons to aim for a wide range of people.
Typically, someone at a high level in an organization thinks in high level terms and is exposed to aggregated information. They are well placed to see the big picture. They may also have past experience with operational details and may even take time to refresh this experience from time to time. Nevertheless, the longer one spends in a senior position the harder it is to be in touch with details.
In contrast, a new employee in a very junior position may have little real understanding of the big picture but even this employee is an expert in at least one thing: what it's like to be a new employee in a very junior position. That may be crucial expertise, particularly in businesses that have a lot of relatively inexperienced employees and puts them in continuous contact with customers.
When it comes to analytical and creative ability the situation is likely to be similar. The senior, high level employee has usually spent more time thinking about the strategic possibilities, looking at research, making plans and so on. It is also quite possible that someone in a senior position is better educated than someone in a very junior position.
But, again, even the most inexperienced and ill-educated employee has one special ability: the ability to identify ideas that are too complicated or subtle to be grasped and acted on by inexperienced, ill-educated employees.
Between these extremes there are countless reasons why an individual may have a piece of information that is crucial to strategy and KPI selection. For example, perhaps they have close contact with key customers, or personal relationships with lenders, or a special understanding of a technology with huge potential implications.
Any of this knowledge could turn out to be crucial to success so, ideally, we would like to make use of it if we can do so without being overwhelmed by information and relationships.
At the very least, adjacent management teams should participate with each other. It is also possible to involve representatives from organizational levels not usually involved in management.
Whether participation is sought through large face-to-face meetings, by circulating documents, or by some other way of getting people together the keys to success must include overcoming the natural caution that usually keeps people from speaking freely in the presence of people higher up the pecking order.
Understandably, the most common reaction to a senior executive asking ‘What do you think?’ is a polite but awkward silence, perhaps broken by a rebel raising a familiar negotiation battleground or trying to score some points. This may even lead to a heated argument but it is not the useful participation needed to share knowledge.
One good way to start things off is for the leaders to present their initial views and identify very clearly where they themselves have doubts and would like input. They should stress the value of the knowledge people have in different positions and from their different experiences. They might also mention that often the biggest strategy is based around small but crucial details.
They should also make clear that once consideration of KPIs has started it will continue indefinitely, particularly as new experience and experiments will often be the best way to settle doubts. They should invite people to come forward at any time in the future to supply fresh information or ideas, especially if they concern one of the major areas of uncertainty.
Just explaining your thinking can be useful, if it is done in an open and honest style, acknowledging past mistakes and current limitations, in a way that respectfully invites others to think through the same issues.
Suppose the top team starts the ball rolling with their choice of metrics, based on some (preferably explicit) mental models of how things work. Their theory is that if values on certain metrics are improved (raised/lowered as appropriate) then that will be a good thing.
If they pass this thinking on to the next level(s) of management teams, particularly if they invite them to participate appropriately, then the reactions of those teams will usually include:
They should be encouraged to feel welcome to feed all this back to the top team. When it does go back to the top team their reactions will include:
The top team should also feel safe to feed their reactions back, particularly where this involves being open about what they do not know.
All of this is purely the objective, rational side of life with no agency problems, and yet still there is dissent and doubt. This doubt will and should continue even as plans are laid and carried out, because we always need to be learning.
Teams at all levels can have ideas about what the metrics should be at any level of detail, but they will often have complementary evidence. So, it's good to get people talking and ideal if it is to share knowledge and work together rather than just to negotiate.
Developing the KPIs
Typically what happens in performance measurement projects is that an initial set of ‘top level’ KPIs is chose and these then contribute to the choice of further sets of KPIs relevant to management teams at different levels and in different activities. The idea is to link these in some way.
In this article I'll call this ‘development’ of the KPIs.
Even if there is no disagreement and a set of KPIs and its underlying causal logic remain completely consistent with those of another management level or area, it can still develop. These are at least three mechanisms for this:
In practice, additional thinking often is not entirely consistent with the initial thinking and often for a good reason. We should expect feedback from teams to cause revisions to the initial thinking but usually with a time delay that means inconsistency exists for a time.
Changes over time
Through participation it should be possible to arrive at a reasonable starting set of KPIs, or multiple sets for different teams, with an understanding of the areas of doubt and even some ideas about how to learn more.
Over time several good things can happen that will lead to new ideas for KPIs and the thinking that goes with them:
Ideas for improving or adapting KPIs can happen at any time, not just to a convenient annual schedule. Obviously, all other things being equal, the sooner you can move to using improved KPIs the better. You can make the changes as soon as possible (by next month, typically) or defer changes and introduce them annually. Which you choose to do depends on a number of factors, including these:
If you want the flexibility to change KPIs at any time then it makes sense to choose technology that will make that possible. IT system developers can be very good at delivering efficient solutions that precisely meet stated requirements, but on this occasion such narrow delivery is not helpful. Operational systems usually hold vast amounts of data that never get used in performance measurement, so what you need is a simple, flexible way to calculate numbers from those data.
For speed and efficiency, do not allow people to assume that a KPI, once chosen, is fixed forever and needs a comprehensive and fully automated collection and presentation system. Perhaps you can find out what you want to know with a limited manual survey for a few months after which you realise that the indicator is not as helpful as expected.
If this kind of participation is what you are aiming for then avoid some of the jargon often used in performance management to describe this activity. Here are some phrases to avoid, with suggested alternatives:
The approach to participation described above means that leaders do not rule by command and control, but neither do they stand back as mere facilitators or coaches and allow subordinates to run the organization. Everyone has a role because everyone has a unique perspective and the big picture is tightly connected to the details.
In my time as an employee I had the opportunity to participate on a number of occasions and look back on them all as happy, productive experiences. Sadly, I was also subjected to many more experiences where the leaders clearly had no interest in what their subordinates might think or know, and instead were focused on promoting their own ideas by whatever persuasive devices they could use, including mock participation.
One of the hardest parts of participation for a leader is to be open about what you do not know. Often we feel under pressure to be ‘confident’ and knowledgeable to an unreasonable extent. Perhaps the key is to be confident that learning and adapting are good, even if we do not know what we will learn or how we will adapt.
I hope this article has encouraged you to prefer genuine participation and the good experiences it brings.
For a broader look at ways to manage uncertainty in performance management have a look at ‘How to embed risk management into performance management and strategy making’.
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Words © 2007 Matthew Leitch. First published 14 December 2007.