Swap worn out kp is for magic productivity measures

Swap worn out kp is for magic productivity measures

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  Swap worn-out KPIsfor magic Productivity measures Highlights how outdated KPIs can produce the wrong results & advocates a small number of innovative KPPs, using worn-out a support department example. ©Ross Harling December 2021 ‘Key Performance Indicators’, or KPIs, only show that we are functioning as required. Not whether we are adding any value to our organisation. On the other hand, new ‘Key Productivity Pointers’, or KPPs, create direct links to bottom line improvements. A smaller number of KPPs, for both individuals & teams helps everyone to save time, stress, and know how their role contributes to the overall success of the business. o you ever feel swamped by your company’s metrics. Do you spend more time worrying about hitting numbers than improving the team’s overall performance and productivity? Are existing measures increasingly irrelevant to the ways our working lives are rapidly changing? Well, you are not alone. There is a big debate as to whether KPIs, or Key Performance Indicators, have outlived their usefulness. Introduced over 30 years ago, KPIs were originally intended to provide jet-setting executives with a relatively small set of statistics to reassure them that everything back at the office was still working fine. If it can be counted, then why not measure it? The use of KPIs quickly expanded alongside the rapid growth of management accounting software, starting with SAP and Oracle. Suddenly a wealth of statistics became available on demand, rather than twenty or so days after month end. The ability to drill down to detailed data meant that every bean really could be counted. So, the mantra went ‘If it can be counted, then why not measure it?’ And almost overnight, the birth of KPIs took place across every department. There are many arguments for the abandonment of KPIs: they are outdated, uninspiring, often illogical, many have no clear purpose, they can be demoralising and, at best can only give a partial ‘indication’ of what is really happening. The clue is in the name, it’s a “Key Performance Indicator’! But with the pressing need for sustaining business growth and improving economic performance, the next debate will be “What on earth should we replace KPIs with?”. Alas, as with many things in this Pandemic, Post-Brexit business environment, it’s time to reframe the question and find innovative answers that fit today’s economic and business imperatives. Britain had already been suffering from a particular economic malaise for more than a decade before Covid and Brexit made the burden far worse. There is no evidence that the use of KPIs alleviated the historical situation or recent business challenges. KPIs may have made the situation worse because, as part of human nature and whether right or wrong, metrics govern our behaviours. A key measure of UK Economic vitality stalled in 2008 The steady increase in UK productivity scores stalled in 2008 after the banking crisis, which started a decade of austerity and public service cutbacks. Combined with recent events, it means there has now been no growth in real wages or the UK standard of living for over a dozen years. Next, on the D
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  2022-24 horizon areTax and NI increases for both individuals and businesses. Together with interest rate rises, inflation, and continuing skills shortages, many economists and financial journalists now predict that there may be no growth in productivity, real wages, and the standard of living for up to sixteen years! A dismal record that has not occurred since the era of Napoleon, nearly 250 years ago. Why is raising the Productivity Score of your company and the country so important? Whenever Productivity rises it begins a ‘virtuous cycle’ which means businesses can afford to pay higher wages, invest in new machinery and technology, become more competitive and, if needed, attract extra investment on better terms. As both the staff and company shareholders benefit, so does the government from increased tax revenue that in turn pays for better public services. A focus on raising productivity scores creates a win-win-win for business, staff, and society. How do we shift from measuring ‘performance’ to ‘productivity’? A ‘Key Performance Indicator, or KPI, only shows that we are functioning as required, not whether we are adding any value to our organisation. On the other hand, a ‘Key Productivity Pointer’, or KPP, is a direct link to improving bottom line performance. A handful of KPPs, for both individuals teams can help everyone understand how their role contributes to the overall success of the business. Over the years, I led several advisory teams focused on establishing measurable productivity improvements for clients, as well as the means of achieving them. The control levers and dials for raising productivity scores can be complex, but they don’t need to be. Take the five inputs that, in combination, are key to managing productivity: Capital, Labour, Energy, Materials and Services. Productivity goes up when the combination of those factors is modified to produce more outcomes of value for the organisation. Or, when the combined cost of those inputs goes down. For example: putting more Capital into better machinery that produces more items and uses less Labour. Changing ‘workforce services’ from cost centre to a value-adding competency As one example for the use of KPPs: Let’s take a support department that provides a range of services to every other part of a business- ‘HR’ or Human Resources, aka Personnel, Human Capital, etc. If, as Chief Executives often claim, people are “their most important business asset”, then HR should be one of the most valued parts of any organisation. Surprisingly, many still work under the “Recruit, Reward, Retain” label that diminishes the value they could deliver with the right measures in place. In the table below is a list of the KPIs regularly used to measure the performance of an HR Department. It’s difficult to see how any team could succeed in meeting even a modest percentage of these metrics all the time. KEY PERFORMANCE INDICATORS REGULARLY APPLIED TO H.R. / PERSONNEL DEPTARTMENTS Culture KPIs Development KPIs Performance KPIs Employee Satisfaction Index Average Time to Fill a Job Vacancy Percent of Job Candidates who Meet Job Criteria Number of Employee Satisfaction Surveys Hiring Process Satisfaction Rate Rate of Internal Job Hires Percent of Employees Trained in Company Culture Cost Per Hire Rate of Internal Referral Hires
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  Of the fiftyKPIs listed above, we can only identify 20% that have a meaningful cause and effect link with organisational productivity. At the other extreme we identified more than 20% that are overly complex, time-consuming, and expensive to measure. These could not be achieved in any meaningful way by typical HR activities or decisions. For example: Measuring ‘Knowledge Achieved by Training’. In the table below we suggest ten ‘KPPs’, or Key Productivity Pointers, for HR that have direct impact on productivity and, consequently profitability. We include one qualitative measure “Managers’ satisfaction score for HR Dept.” because as a provider of services to other parts of the organisation, we believe the ‘voice of the customer’ is an important pointer to the quality and value for money of HR’s contribution to other departments. KEY PRODUCTIVITY POINTER ACTION TO ACHIEVE A HIGHER PRODUCTIVITY SCORE Recruitment Cost per Head (£) Reduce cost by using online job sites/remote profiling Recruitment Time Grade/Job Type (Days) Cut time-to-fill specialists via networks e.g.: Linkedin Staff Absentee Rate % High productivity impact. Diagnose causes & minimise Staff Turnover Rate (Churn) % Hi-Med impact, minimise. Benchmark sector averages Staff Satisfaction/Morale Score % Can lower motivation & performance. Diagnose & fix Number of Disputes/Incidents (Qtr./Qtr.) Cost & disruption. Diagnose & eliminate repetitions Vacancy Rate as % of Headcount High Impact. Check external reviews e.g.: Glassdoor Training Delivered vs. Budgeted % Wastes Resources. Lowers overall skill base. Fix cause Unplanned Overtime % total hours Productivity, morale, work/life balance Reduce causes Managers’ satisfaction score for HR Dept. ‘Voice of the Customer’ for HR’s service quality/costs Percent of Vacation Days Used Effectiveness of Training Performance of New Hires Employee Net Promotor Score Training Cost per Employee Internal Promotions Vs. External Hires Employment KPIs Percent of Employees Trained Internal Promotion Rate Absenteeism Rate Diversity & Gender Balance Suggestions made per Employee Number of Full Time Employees Number of D&I Initiatives Implemented HR-To-FTE Ratio Number of Contractors Attrition Rate Cycle Time To Process Payroll Average Tenure Turnover Rate For Highest Performers Cycle Time To Resolve Payroll Errors Voluntary Termination Rate Average Time to Find a Hire Percentage of Workforce below Performance Standards Involuntary Termination Rate Candidates Interviewed per Hire Compensation KPIs Retirement Rate Yield Percentage Percentage of Cost of Workforce Average Age Of Retirement Knowledge Achieved by Training Salary Competitiveness Ratio (SCR) New Hire 90-Day Failure Rate Diversity Numbers/Nationalities In The Work Force Healthcare Expense per Current Employee First Year Voluntary Termination Rate Training Acceptance Rate Wage Benefits Satisfaction Satisfaction score for HR Dept. from other managers % Staff Participating in career coaching program Average workforce commuting distance
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  Less is More… Allten of these KPPs can be measured and compared on a Quarter-by-Quarter basis without creating a major bureaucratic overhead. And they can be quickly reviewed by the wider management team. They also fit the ‘SMART’ criteria for objectives and goals, each is Specific, Measurable, Achievable, Realistic, and anchored within a Timeframe. Are these the only Productivity Pointers that define and prescribe measures for any HR department? Almost certainly not, those will vary according to industry, company size and its current goals. Also, they do not serve as a substitute for the specialist skills, experience, and knowledge of regulations needed by every competent business function. They are intended to illustrate the view that measurement for measurement’s sake serve little purpose in a rapidly changing business environment. Perhaps the new mantra needs to be “Less is More”. Finally, whatever KPPs you select for use in HR, ICT, Finance, etc, they should be kept under review and updated as and when circumstances necessitate. As the saying, or cliche, goes “You get what you measure.” The first implication being that people will do almost anything to maximise their scores. The second, that if measures are relevant, logical and have a clear purpose then the improvements you want to see might magically take care of themselves. Ross Harling is MD of www.dx.company , author of ‘ChangeAbility: How winning organisations continuously transform themselves’ and an award-winning inventor. An Economist by training, Ross has an extensive international career in IT and as a performance and productivity adviser to the boards of many organisations in the commercial and public sector. An expert evaluator for the EU on new technologies and business models since 2014, Ross can be contacted at [email protected]