This internal element of the WITORG Guide reflects on how any organization pursues some main objectives or goals. To do this, the organization will deliver products or services through which the goals or objectives proposed will be achieved or not, which will be measured both qualitatively and quantitatively through key KPIs.
In the following diagram the position of this internal element in the guide can be seen:
The goals or main objectives of an organization, for more or less defined periods, can be achieved through a more or less formal organizational system. During the period set for its attainment, it is advisable to review with certain frequency if it is aimed to their achievement. For this, a main KPI scorecard will be designed. Through the observation of the main KPIs performance, the achievement of the objectives and goals can be assessed.
Examples of key KPIs in for-profit organizations:
- Profit after taxes.
- Customer satisfaction.
- Ebitda.
- Sales.
- Market share.
- Level of indebtedness.
- Efficiency of the productive system.
- Non-quality costs.
- Others both qualitative and quantitative.
The organization’s main objectives or goals are measured through key KPIs as indicated, which show a global result of the organization. Sometimes, the KPIs will even be published and it will be possible to evaluate if the goals or objectives were achieved or not publicly.
When talking about main KPIs, a period (frequency) is usually established after which the result of each KPI will be evaluated with respect to a marked objective. It is very likely that, for the calculation of a main KPI, not all the information is available until after the period established to reach an objective or goal is ended. From this point, the following reflections arise:
- Can the main KPIs be monitored within the established period to reach the objectives or targets if all the information is not available?
- What are the reasons for not being able to monitor KPI within the established period to achieve the targets?
- Can the main KPIs be measured indirectly?
- Are there other KPIs that give us an approximate idea, even indirectly, of how a main KPI will evolve within the period defined to achieve the targets?
- When an important deviation is detected or sensed regarding the target set for a main KPI, how does the organization react?
- Are the ways of reacting to important deviations of the main KPIs formalized to some extent within the organizational system?
The answers to these questions will depend on how each organization has designed and implemented its organizational system.
Key KPIs, monitoring KPI and targets deployment
In reality, the main KPIs are usually connected to other KPIs either directly or indirectly. This means being able to intuit, and even affirm, that the main KPI will reach a target value when analysing other KPIs considered as non-core. KPIs not considered main, but related to a main KPI, will have a fundamental role in the organizational system.
Consequently, it is proposed:
- To reflect on the organizational system of an organization and observe the connection options between main KPIs and other KPIs.
- To reflect on the simplicity or complexity of objectives deployment and the role of the main and non-main KPIs.
- To reflect on when a non-main KPI indicates an important deviation that could affect a main KPI and how the organization reacts through its organizational system.
The objectives deployment is a great opportunity to communicate goals to people. In addition, the objectives deployment in an organization is an opportunity to create a common language. For this, WITORG considers it necessary to design and understand the main KPI links (those with an organization raises its main objectives or goals) with other KPIs that will allow monitoring different tasks or activities, which have connection and influence with the main KPIs.
Therefore, we will classify the KPIs as:
- Main objectives or goals of an organization or ‘main KPIs’ will be: KPI-P.
- Monitoring KPI of tasks or activities will be: KPI-M.
The activities for an objective’s deployment will consider the following points:
- KPI-P monitors compliance with the main objectives or goals of an organization.
- A map will be designed where KPI-M and KPI-P are connected or related. The objective is to understand the interrelated variables that influence a KPI-P.
- The KPI-P connection with KPI-M can help to build a common language regarding the organization’s objectives.
- The three previous points will help in the objectives deployment.
Connecting KPIs to management processes
The first level objectives of an organization, described as KPI-P, should not be very numerous. In contrast, the number of KPI-M to monitor different elements or activities that will influence the KPI-P is usually considerably higher. The KPI-M connection with the KPI-P is made through the design of management processes or management subprocesses (this topic will be discussed in chapter 5).
Therefore, the connection of KPI-M with KPI-P through the management processes is one of the most important internal designs of an organization. Any management process comprises several KPI-Ms that connect to a KPI-P. The KPI-M link to each other. Attempting to maximize a KPI-M can cause harm on other KPI-M and on the KPI-P, if the relations between them are not known. Hence the importance of the minimum requirements to call something ‘management process’ as discussed in internal element 300 of the guide.
In organizations where there is an evident Taylorist essence, the distribution of power occurs mainly in departments or functions. When these departments are somewhat opaque in terms of interdepartmental relations, the connection of a KPI-P with its KPI-M is precariously made, as it does not have management processes as they are understood in this guide. The departments monitor their KPI-M trying to improve them from a local optimum point of view. However, if a management process is not available and the relationships between the KPIs are not known, improving a KPI-M can damage other KPI-M and, especially, KPI-P. Two classic phrases describe these cases:
- Tell me how you measure me and I’ll tell you how I behave.
- The local optima do not have to achieve a global optimum.
In addition, nowadays BI (business intelligence) tools offer a wide range of possibilities when it comes to connecting and linking a large number of KPIs with each other. This type of connection acquires another dimension when the management processes acquire an entity such as the one described in section 300.
Quality systems, process management and KPIs
External element B reflects on the family ISO 9000, EFQM, TQM, QMS, etc. Many organizations rely on them to create their own organizational system. They are conceptual models that show the requirements to be met, however they do not show how to do it.
The Taylorist or clearly departmental organizations usually try to comply with the requirements of the standard without reviewing the organization. Each department or function has to prepare to meet the requirements. In fact, when looking at the process map (requirement of some quality standards), functions or departments appear as management processes.
Within those conceptual models, the use of KPIs as requirements is also regulated to a certain extent. As mentioned, the concepts management processes and process management are also within the requirements. In the requirements of the quality systems, it is minimally indicated how many and of what type the KPIs must be for each defined management process.
WITORG considers key to understand the importance of the design of the management processes and their connection with the KPIs. Quality systems are references that can serve as a guide in the construction and evolution of an organizational system; However, they are still external and conceptual elements to an organization. For some reason, and at a given moment, an organization decides to take a reference model and incorporate it into their organization.
The reasons why an organization decides to incorporate a quality system for its organizational system can be several:
- A client’s requirement.
- Demand from the sector.
- Intention to improve the organizational system.
- Prestige or fashion.
- Any other the reader wants to add.
There are organizations certified in the ISO 9000 family of standards, such as ISO 9001, IATF 16949, etc. where a great effort is made to update the KPIs and document certain evidences the weeks before the recertification. In these cases, the organizational system in question does not meet the standard on a day-to-day basis. However, the need to be certified will make that final effort necessary every year. This is a symptom of several possible problems within the organizational system, such as:
- An organization that only seeks certification to participate in a sector.
- An organization where the quality function prepares a system parallel to the real to be able to comply with the standard.
- Functional departments managed as management processes, with the supervision of the quality function.
- Impossibility of system maintenance on a day-to-day basis due to the necessary bureaucracy.
- Management processes designed in a theoretical way that do not correspond to reality.
- Any other the reader wants to add.
It is necessary to design a management process that meets the minimum expressed in point 300, the connection between management processes with KPI-P and the connection of KPI-P to KPI-M, to build an organizational system that works with relative speed when deviations occur on the KPI-P. Or even when deviations are detected in KPI-M that indicate that a KPI-P will be diverted at the end of its period.
Classification of KPIs according to proactivity or belligerence
External elements B and C of the WITORG Guide have associated KPIs. In them, the PDCA, or Deming circle, frequently appears as a management loop where both KPI-P and KPI-M are involved.
The KPIs are also mentioned as review elements of the management processes, where KPI is considered both for efficiency and effectiveness.
Among so much jargon the essence of KPIs can be lost. What do we use KPIs for?
WITORG Guide considers important to analyse the KPIs from their belligerence. Sometimes it is observed in them that, either because of their low frequency of revision, their bad KPI-P/KPI-M connection or because they are a mere requirement of a standard, they do not fulfil their function. In WITORG, the function of a KPI-P is to monitor the fulfilment of the main objectives or goals; and that of the KPI-M, to monitor both external and internal variables that affect the outcome of a KPI-P. All focused on acting as soon as a deviation is detected.
Types of KPI according to their belligerence:
- I.-KPI with low review frequency.
- II.-KPI with high review frequency.
- III.-KPI monitored in real time.
I. KPI with low review frequency
Considering both KPI-P and KPI-M, how often do we review the KPI and what needs to be done to revise it?
A low review frequency implies not knowing what happens between two revisions, that is, in a considerable period. In short, you remain blind as the KPI in question is not available, with the associated danger of not controlling during two reviews serious situations or events that could put the organization at risk.
Case-A: Take as an example a monthly review KPI where this type of process is given: the month ends, data is collected, processed and a photo of the KPI in question is obtained on the fifteenth day of the following month. In cases like this, and when the KPI monitors the outcome of a continuous process (manufacturing processes), if an important deviation has occurred, it can be difficult to arrive at the causes for which the marked objective was not reached. Nobody remembers what happened or compiling the facts is almost impossible. Is this KPI oriented to action? If the answer is no, we will face a case that, in addition to being of low review frequency, the KPI does not lead us to action, to point 200 of the WITORG Guide.
Case-B: There may be KPIs that, in order to analyse them, it is necessary to collect information from a period of time and perform the corresponding analysis to obtain the result. In this case, if the information collected helps to take action, at least the KPI will be action-oriented, point 200 of the WITORG Guide. However, we will be blind in the interval between two revisions of the KPI.
II. KPI with high review frequency
Let’s consider the following example, a KPI is reviewed daily analysing the performance of the previous day. From one day to the next, the memory is still fresh, and we usually get to know the events that lead to an unexpected result of the KPI. Even so, we find the same cases as in the previous KPI point of low review frequency:
Case-A: We are not able to know the cause for which the KPI has obtained an unexpected result: the person who intervened is absent, it happened at night, etc.
Case-B: We know the cause and we can act on it.
By high frequency we refer to reviews every few days or less.
III.-KPI monitored in real time
In this case, the KPI is monitored in real time. This means that information about the deviation of a KPI is received when it happens and is analysed at that moment.
Belligerence or proactivity of the KPIs
How does an organization act after a KPI deviation?
We will use the term ‘belligerence’ to describe the speed and proactivity with which an organization is activated and acts as soon as a KPI deviation occurs. Therefore, we will describe the KPIs as more belligerent when:
- The information behind the KPI is analysable to know reality.
- When meeting the KPI approaches or equals real time.
- When the organizational system is prepared to act with immediacy before unexpected results of the KPI with respect to its targets.
Therefore, if ‘proactive’ or ‘belligerent’ KPIs are designed, it will be easier to work in a belligerent organization.
KPI for the visualization and monitoring of elements external to the organization
The organizations, generally, use SWOT analysis, etc. in their strategic plans to compare or analyse themselves with the market, competition and other external elements. Typically, strategic plans have a low review frequency. As the speed with which the world evolves is changing, is it useful to make strategic plans with low review frequencies? Better than not doing them, sure it is.
The analysis of the ‘management process’ of the strategic plan and its adaptation to new times may be necessary in many organizations. In addition to analysing the management process itself, and its subprocesses, the choice of KPIs is important, considering the frequency of review and their belligerence.
For this, it will be necessary to think in flow mode instead of in photo mode. The blindness between two photos can bring surprises that jeopardize an organization’s survival.
Systems and KPIs
When we talk about systems, we refer to that wide and varied world where hardware, software and methodologies/tools with different acronyms are included, such as ICT, ERP, business intelligence, CRM, Web 2.0, PDM, PLM, lean manufacturing – VSM, supply chain, Kanban, TQM, MES, industry 4.0, automation pyramid and industry 4.0…
These systems include tools to monitor KPI or collect information for analysis, both in real time and a posteriori. In addition to allowing the monitoring of KPIs, they have functions or tools that are used in management processes. Once a management process is designed, the organization incorporates tools, methodologies, etc. for its management. Including also what was explained in point C.
In recent years, technological advances have allowed access to tools/methodologies, hardware software and ICT in general at affordable costs for many organizations. Thanks to this, the rethinking of the management processes and KPI monitoring is convenient. Monitoring KPI and having greater knowledge of what happens internally and externally in an organization does not require great technological or time efforts; of course, people within organizations must be prepared to understand the available technology and make the most of its advantages.
It is known that not all the elements implementations included in point C are successful compared to the initial expectations. For example, the same ERP, in the same sector and with similar casuistry, can produce a satisfied organization and another where the implantation has failed. The systems are elements external to the organization that can bring important organizational improvements, but it should not be forgotten that before incorporating them it is advisable to have:
- Designs of management processes that contemplate our reality and are integrated into the organizational system
- The KPIs to monitor.
- People trained in the technologies that support these systems.
Within the KPIs, there is the BI (business intelligence) concept, which currently provides, and has for some years, tools to monitor and interconnect KPI with each other, both to know reality, as well as to manage immediate decisions. In this way, both process management and continuous improvement are facilitated.
The topic about systems and KPI monitoring will be discussed at Pyramid of automation and industry 4.0