Thoughts on KPIs from High Output Management
I am a strong advocate for the power of key performance indicators (KPIs). These indicators help guide and focus departments, act as leverage when requesting resources, and provide insight when diagnosing trends before they become significant problems. They apply as much to a personal level of accountability as they do for a department or company. I am re-reading Andy Grove’s book, High Output Management, and he has an excellent chapter covering KPI concepts.
In chapter 2, there are many pearls of wisdom for managing with the power of KPIs. Mr. Grove’s thinking about this area has influenced me greatly over the years. I do not agree with all his positions, but I am significantly aligned with his methods and have tweaked some of his concepts to meet my needs. Take about six hours of your life and sit down with this book and a notepad. His book is a quick read and worth every minute of your time.
Personal Key Takeaways from High Output Management by Andy Grove
Performance indicators provide specific focus points for people and elucidate elements of the highest value operations. We are awash in information overload, and just because something is trackable does not mean it should. A good performance indicator should focus on supporting organizational goals. This may be done from a preventative position such as monitoring equipment performance to detect quality issues before a system failure occurs or maintaining expected levels of performance. Andy Grove reminds us that indicators draw our attention, so we must be careful in our selection process, so we do not become myopically focused or blinded to other business factors. He advises that indicators should be paired together to help prevent too narrowly focusing our attention. This is an outstanding idea and naturally flows from using performance indicators to paint a story of operations. Additionally, he goes on to discuss the concepts of leverage around the highest steps in the production cycle. This is an area that is simple to think about but often forgotten. The first letter of KPI is “Key.” Leaderships’ attention to the highest value elements of production is import and KPIs help keep attention where it belongs.
Mr. Grove advocates for the measurement of outputs as a more efficient indicator because results are what matters the most. I differ here as I feel that both activity and production are too closely related in many industries and should be tracked as a pair. For example, sales calls to the right customer targets are strongly correlated with sales performance. Furthermore, salespeople activity should be monitored as a leading indicator of sales, potential diagnostic of marketing messaging, evaluation of sales training, and as a diagnostic for industry access trends for the customer base. Again, we need to look back at his warning about focus and attention. Managers need to pay attention to the right things. What we track will become the focus of the team so a balance must be made to ensure that people do not go through the motions to make the KPIs look good while the underlying performance begins to falter.
Key performance indicators are hugely beneficial when combined with actions. This is a straightforward concept but not often followed. Mr. Grove cautions that performance indicators are useless if we are unwilling to take action based on the indicator’s signal. If we are resistant to do what is necessary to keep our KPIs within acceptable ranges, then we either have the wrong KPIs, or we need to alter our management practice. It takes great fortitude to make changes when things look like they are going well on the surface, but the KPIs are beginning to tell us a different story.
Adjusting during the good times is often more challenging than making adjustments during the hard times.
If you have not guessed, I have great respect for Andy Grove. He is one of the leaders I have admired for years, and I feel that his legacy will continue to shape management thinking and the technology that he helped bring forward.