It is budget season, so amongst the detritus of everyday management, we have to make time for creating the budgets for the next 12 months, in Australia usually starting July 1. Hopefully, budget preparation is a normal part of the management ‘flow’ of your enterprise, where it follows naturally after a regular strategic review and preparation of operational plans. The budgets then become a financial expression of the operating plans, but sadly, it is most often not the case.
Irrespective of the procedures that dictate preparation, part of the budget process is the setting, or in most cases, the resetting of Key Performance Indicators, KPI’s.
In almost every case I see, KPI’s are all about outcomes, achievements that more often than not are recorded in the financial reports, which are an alarmingly one dimensional reflection of performance in today’s world.
Would it not be better to set KPI’s based on the behaviours we want, which are after all the underpinning of outcomes. It is unlikely the outcomes will be favourable unless the behaviours that occur are constructive.
There are many challenges in setting KPI’s in this way:
It is hard to do, therefore we take the easier route
To be effective, behaviours, and specifically the behaviours we want, need to be made sustainable, part of the everyday routines, not something that happens when the boss is watching.
Behaviors are a product of the environment in which we exist, so the task of management is not just to mold behaviors, but too mold the context in which you want them to evolve. Commonly this gets called alignment, but almost always it implies financial alignment, rather than the broader definition that includes revenue generation activities, operations, process optimisation, and capability development I think appropriate
Behaviours are integrated into the processes of any enterprise, together they make up what is commonly called ‘Culture’. Again, these do not evolve without senior management taking control, and being seen to do so, thus enabling the processes to evolve in a direction consistent with the objectives of the enterprise.
Are the behaviours in your enterprise all contributing to the objectives, or are they disconnected, the KPI’s just a set of optimistic benchmarks dreamed up in the boardroom designed more to intimidate than motivate?
Hallelujah! Recognition that a KPI is not a target or a measure of outcome but rather a measure of performance (= behaviour)
yes, how often does the ‘target’ become the only factor considered?
Black and white: you did or did not reach sales target, ignore that the factory produced some bad stuff that required recall. Stuffs most sales programs!