Outline:

• General Concept

• Problem & Solution

• Problem Example

• Solution Example

• Tips for Implementation

• Summary

General Concept

Key Performance Indicators, or KPIs, are tools for companies to measure performance against its objectives and determine the effectiveness of their teams. They are a snap shop intended to give us a concise health check. I would go a step further and argue KPI metrics are essential in a company’s growth. The adage of “what gets measured gets managed” certainly rings true here. Good companies, certainly great ones, know their numbers. Great companies ensure their numbers properly measure their current priorities. This article demonstrates the power of KPIs that both evolve and cascade down to the supporting teams.

Problem & Solution

KPIs are time tested and pointing out their effectiveness is not the kind of groundbreaking insight I plan to deliver to you at AmplifySustain.com. However, there is a difference between knowing the important metric and having the metric implemented within your teams. I routinely see companies fall short in their implementation of KPIs, leaving the potential benefits of these metrics half baked. This is due to not properly cascading, or linking KPIs to the teams responsible for delivering the results. Unless the supporting actors also have a metric to maintain, a group's KPI can often become a one person show, or metrics that become important to the leadership group only. If your teams don’t care about that metric then the KPI is only a vehicle to explain the current state and will not provide you with the action needed. The solution: employees at all levels also have supportive KPIs that contribute to the broader goal. And to update your KPIs often.

To better detail of how to cascade KPIs, let’s look at company’s leadership meeting. I’ll give two examples of the same meeting, one without any cascaded KPIs and contrast that with an example using cascaded KPIs.

Problem Example

Tom’s Hardware Company hosts a weekly staff meeting with its leadership group. The meeting is well-run with an organized agenda, and always starts with a roundtable sharing of KPIs. Later they get into the President’s weekly agenda but they always end with action items for each leadership member. The company's leadership group consisting of Sales, Marketing, Finance, and Procurement has grown comfortable with the flow of these meetings, especially during their sharing portion where the organizations KPIs are reviewed. Each department takes turns reporting out their main KPI offering anecdotes on what could be causing the change, good and bad. The team members show up prepared, having generated their KPIs in advance from their custom built spreadsheets. They take turns sharing their metric and even know in advance when performance is missing the mark and can offer why. Maybe their leadership meeting resembles something like this.

In the example above we can surmise that action is formed when a metric starts to slip from the agreed upon baseline. While Tom's Hardware Company seems to be running a well organized meeting, the KPIs are not having much impact and many seem to be accidentally benefiting from the organizations foresight to add a service department. The KPIs themselves are disjointed and they don’t actually align with the president's current top priority for the quarter. In some cases, it’s questionable if they are actually providing value and direction or if the team is waiting for them to trend up on their own. The biggest issue in this scenario is there are KPIs at one level of the organization, management. The managers at Tom’s Hardware are demonstrating that their KPIs are not cascaded to their teams. They see the KPI as an output of the team's performance or another department's performance. They are falling into a cycle where they are using the metric to explain what has happened instead of what they are doing about it.

Solution Example

Let’s looks at an approach with cascaded KPIs. Same scenario, same weekly meeting at Tom’s Hardware Store. In this instance you will notice a bit more thoughtfulness in how the team is focused on supporting. You will also notice that a KPI exists at every level of the organization. Not just with managers. The president, the manager and employees. Every level. With this slight change in mind, maybe the meeting would could look like this:

The difference in this set of examples is a minor change.

There is an additional team KPI.

By doing so each department presents a plan for each KPI that needs attention. There seems to be a greater handle on the needed steps to make progress towards each goal. Each manager is demonstrating their team is engaged and able to contribute by instilling KPIs that help determine where to focus. The teams work is clearly supporting the departments current KPIs. All of the KPIs, when improved upon, support the main KPI of the organization - Return on Sales. (ROS).

Tips for Implementation

• KPIs can often be executive leader darlings, but a thorn in the side of employees responsible for delivering the results. Overcome this by walking them through the dependent relationship between the metrics. You get more employee engagement when the employee understands their direct impact on the enterprise and afterall, performance is the most important part of KPI.

• Evolve your KPIs. It is likely that your priorities are changing and so should the indicators you use to judge the performance. KPIs are not in place to ensure status quo, they are in place to ensure effort is positively impacting performance. Do not get attached to your metric. This isn’t about the numbers, it is about what the numbers inform us to do.

• Before a KPI can be relied on, the data criteria must be defined. This usually requires getting some systems in place. This is normal. For instance, in order to measure your OTIF (on time in full) you have to have a system for collecting the quoted estimated time of arrival from the vendor. Once this is a standard, the formula can be created to calculate the metric and the data relied up. But after, not before. Creating metrics based around what you can only measure today can leave too many blindspots. Getting your data organized will pay off, it is worth the work to get it clean.

• If you are a leader at an organization that looks similar to Tom’s Hardware Store you may be wondering how you change the culture to be more like the solution example of cascaded KPIs. An approach could be to implement this methodology within your team first. Speak up if your KPI does not support the top priority and present a solution for a better metric. It is ok to challenge the importance of the indicator, or priority. Then ensure your direct reports have clear KPIs that support and have impact on a the KPI you report on. During your reporting section, share the evidence with the executive team. “I believe we are having success and impact on this indicator due to putting team KPIs in place that are cascaded from this KPI. The team is focused on directly impacting the organizational KPI and we have alignment. The positive trends we are seeing is due to this focus.” This approach of leading by example will be contagious when successful. Simply put: change the culture of your team first and use success to lead to larger change.

Summary

I hope this article proves helpful. My hope is that this simple example provides a framework of how to consider cascading KPIs. The KPIs used in these examples are to provide context. We could certainly argue which are the best for a retail store like Tom’s. More importantly, it's the cascading of the metrics that is effective. A metric or indicator is only valuable by how it causes us to act. So ensure yours are indeed supporting the latest priority and that they are cascaded down within the organization. As you settle in on that metric, think of the individual contributors. How are they joining in on accomplishing this goal? What are their metrics? Do they impact the highest level KPI? By doing so, you will both positively drive the KPI and more meaningfully bring employees into support.

Leave a comment if you have any questions. If you like this type of content then please subscribe to my newsletter, where I periodically summarize my learnings. If you would like to talk more about cascading KPIs within your organization then please drop me a note.

Additional Resources