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Digital Transformation Blog

Practical insights on the digital revolution

Avoiding the Real-Time KPI trap

Performance management has been going on for a long time.  The Venetians get credit for inventing not only double-entry bookkeeping but also the concept of ROI.  But as new measurement techniques have been added to the management toolkit over the years, we have improved our ability to both collect and analyze performance data.  The combined impact of four big digital trends-- Low-cost Computing, Low cost Bandwidth, Connected People, and Low Cost Sensors-- means that most organisations of any complexity now have an almost infinite set of Performance Indicators they can measure.  Is this a good thing?

In fairness, most of these performance indicators don’t matter. (Because most performance data don’t matter—it’s down too far in the weeds.)   And analyzing data that doesn’t matter creates a management and administrative burden that many of us know all too well-- hours lost collecting data, analyzing data and reporting out information that no one reads or acts upon.   It’s bad enough that it’s a waste of organisational resources, but even worse, this wasted effort has a corrosive influence on the organisation.  People lose faith in management’s judgement.  (If management is focusing on the wrong data, what else is it that they’re getting wrong?)  Reporting becomes an exercise in playing defense, not focusing on the biggest issues the organisation faces.

KPIs are always an exercise in Prioritisation—what are the precious few indicators that really tell you how you’re doing?  Most people in organisations are working hard on too many things. This dilutes their focus and impact and ultimately harms the bottom line. But this is fixable. By understanding and using the key concept of wiring you can permanently embed prioritisation tools and prioritisation habits into your organisation to speed up the pace of improvement. Prioritisation requires a rigorous approach and a constant focus. At PIP, we believe that using simple tools can help organisations significantly improve their execution skills and leads to tangible bottom-line impact. For these tools to have a lasting effect, they must be hardwired into the organisational habits.

Prioritisation is hard enough when the performance data is collected once a day.  But today, we have tools that, for better or for worse, can collect performance data in real time—hundreds of data points a day.  Used correctly, these allow you to fine tune performance to a degree impossible 10 years ago—imagine the benefits of being told every time throughput for a key process drops into a danger zone, or stockpiles run dangerously low.  (And being told in time to take corrective action.)  At the same time, imagine being bombarded with alerts about production levels that may or may not be important, and even if you act on it, probably doesn’t affect the bottom line.  KPIs should never turn into spam.

Real-time KPIs offer 3 significant benefits that are worth fighting for:

Alerting key people to critical issues as they are happening, not long after the fact. In most industrial organisations, KPIs are captured manually at the end of a shift.  For some processes, this is adequate, but particularly in continuous processes, it can be very valuable to know when you are heading into or out of an optimum so you can take the required action.

A finer-grained data set that allows you to do richer analysis when looking backwards. Analyzing performance with one data point per day can teach you many things; a data set with dozens of data points per day may in many cases tell you more.

Broader distribution of KPIs. Production data in industrial environments is usually captured on a whiteboard once per shift.  This limits the ability to distribute the data, at least until they are recorded into a spreadsheet at the end of the day.  But once data becomes digital and real-time, it becomes very easy to distribute instantly to phones, tablets, and computers.  That means that for the core management team, they can track multiple KPIs all day, and be alerted if an indicator is trending the wrong way.  It also allows the data to be delivered to anyone instantly-- line managers, finance people, even board members.

But this new abundance of data intensifies the need for Prioritisation.  What should be monitored?  Who should monitor it?  Who should be alerted? We have three Golden Rules of Prioritisation—

Use the 80/20 rule—80% of the value comes from 20% of the levers, so focus your attention on the big things.

Don’t block the pipeline. Focus on those precious few initiatives that will make the biggest difference

Avoid Headless Chicken syndrome by ruthlessly prioritizing

When deciding how to use Real-Time KPIs at your organisation, these 3 Golden Rules can be focused more specifically:

Be explicit about what KPIs matter and why. Ask “So What?”  (For example, “We can get real time production data from the shaft-boring machine so we can know second by second how much earth is being moved.” “So What?  Does that really affect the bottom line?  What important decision would we make with that information?”) Start with a clear, fact-based view of how your business creates value.  At PIP we find the Value Driver Tree indispensable for understanding which levers create the most value.  There are only a few levers where Real-Time data may be relevant to collect; and if they don’t really drive your business, you may not need to collect the real-time data at all.  Daily or even weekly collection may be sufficient.

Only focus on a few KPIs at a time. Don’t divide the team’s time and attention by monitoring 100 KPIs closely.  Pick one or two and focus intently on them.  At PIP, we have seen powerful results at our clients who use the SPIN cycle, which involves setting specific targets and iterating rapidly.

Treat your management team’s attention as a precious resource which is constantly in demand. Be clear about who needs to get the information, what they will do with the information, and how often they need to get it.  It’s not unreasonable for the CEO or even board members to get updated on one particular KPI as often as once a day if the KPI is that critical.  But in general, less is more—don’t clog up everyone’s inbox or notification screen with multiple updates unless that person realistically can do something that improves the situation.

Like many other new digital tools, Real-Time KPIs offer significant benefits, but only if they’re used with extreme discipline.  Resist the temptation to update everyone on everything, and have the discipline as a management team to (a) know what really matters, (b) rigorously track performance on those few KPIs, and (c) husband the time and attention of the management team jealously.