Topic 2.4: Key Performance Indicators (KPIs)

An enduring adage is ‘what gets measured is what gets done’. Poor grammar aside, this mindset is a feature of most organisations, and is particularly prevalent in public sector environments. Jeffery Pfeffer, a foremost strategist and management thinker, and his co-author Robert Sutton, an engineer and organisational design academic, suggest that measures routinely cause long-term problems in organisations because they guide people in what to notice and what to ignore (Pfeffer & Sutton, 2000)^[1]. The problem-causing measures, according to Pfeffer and Sutton, tend to cluster around short-term financial performance, those that are overly complex and difficult to translate into the everyday lived experience of employees, and those that focus largely on end of process outcomes rather than in-process measures.

Short-term measures tend to shift resources and energy away from ethical behavior and also sideline projects with challenging and, in the public sector in particular, those that may perhaps deliver long term societal benefits but that come with short term political pain.

Complex measures such as Balanced Scorecard (BSC) systems, can tend to distract the focus away from single issues or the specific sets of activities that people and teams have as the key drivers of success within their realm. These Key Performance Indicator-focused systems also tend to have hard outcomes as their primary goals and objectives, which often ignore the people elements of strategy execution. The end of process indicators focus on what has been done, not how things are being done, which can distract from exploring what is going right and what is going wrong.

Overall, the premise is that measurements systems should focus on the ‘things that really matter and things that [employees] can directly affect’ (Pfeffer & Sutton, 2000, p155). Berman and Knight (2008)^[2] have the notion that performance goals, KPIs and other metrics should be used to help people understand the organisation’s business, the direction of the business, including changes of direction, and are important information sharing mechanisms. The idea is that when people understand what is going on, trust increases and engagement is enhanced.

Measures that enhance organisational knowledge, performance and engagement tend to be those that focus on the essential and fundamental factors, in order of performance. These might be perhaps, safety, employee engagement, customer loyalty, quality and financial performance. Measures should be simple and easy to understand, should be frequent and consistently available, focused on action, processes and decision-making, and tied to the organisation’s business model, culture and philosophy.

The final piece of the system is the reward and recognition system, which encompasses the notion that cultures drive performance, and that strong cultures have comprehensive reward and recognition systems that provide rapid feedback for compliance and non-compliance (O’Reilly & Tushman, 2004)^[3].

As a wrap-up to this section, we suggest you scan the recommended reading, and for now note in particular page 38 and Figure 1, which highlight the importance of an integrative system, based on sound strategy, stakeholder involvement, a learning and evaluative culture, and managerial insights (Swee, 2012)^[4].