Do Requirements Really Matter?

Note: This is a re-post of a blog entry we wrote several years ago, but recent experience has confirmed that it is still as relevant as ever.

Do Requirements Really Matter?

Craig Schiff , President and CEO, BPM Partners

Of course they do, but you wouldn’t know it by looking at many of the companies we meet with while they are in the process of selecting a performance management solution. A company we worked with a few months ago illustrates this point perfectly.

When we walked in the door they were far down the path with a particular vendor and they just wanted us to ‘validate’ their decision. In other words, did we believe their assessment was right that this vendor could meet their requirements. Well, we’d have to see those requirements first. The good news is that on the technology side they had a decent set of requirements outlining required interfaces, supported databases, desired performance/responsiveness, remote access needs, security, etc. It was a 12 page document and also included a project timeline.

On the business side, it was a paragraph someone had sent as an email. It went something like ‘need to implement a system to replace Excel-based planning and reporting’. Now of course the finance team and business unit leaders involved had a lot more thoughts on what they wanted, but it was all in their heads. It was not clear that they had even discussed it with each other. There was no way this was going to end well. So, we recommended they step back for a moment and let us help them develop detailed requirements.

They put together a team of 40 key stakeholders and we interviewed all of them (some in departmental groups, others individually). The end product was a nearly 60-page document reviewing the current status of their systems, related challenges, and required functionality of the new system. While the raw interview data was maintained, the requirements were summarized by product functionality area and prioritized by frequency of request. One of the first things that became apparent was that they were looking at capabilities that went far beyond just planning and reporting.

The end result of all of this was that the vendor they were about to purchase was now obviously not a fit. Using these new detailed requirements we helped them identify several vendors that could potentially meet their needs. They went on to evaluate four of them against their specific requirements. They then scored them according to their ability to meet each requirement and went into contract discussions with the top two scoring vendors.

Without detailed business requirements you could easily select the wrong solution, as almost happened here. In addition how can you compare vendors without knowing what specific criteria you are using for the evaluation and scoring? There is also a hidden benefit to this requirements process. Those 40 people that were interviewed now feel that their voices were heard and their input was taken into account. While it is unlikely that 100% of their requests will be met by the new solution, because they were part of the process they will help support a successful rollout and accelerate user buy-in and adoption.

Requirements gathering is of course an integral part of our vendor selection services. Learn more here.

What’s the Value of a Performance Management ‘App Store’?

What’s the Value of a Performance Management ‘App Store’?

Craig Schiff , President and CEO, BPM Partners

Overview

Most vendors today offer something they refer to as a library, exchange, hub, or marketplace of solutions. These offerings are designed to augment the vendor’s standard products and services. The solutions themselves are developed by the vendor, their partners, or in some cases other users. The main goals, according to the vendors, are to expand the ways a user can benefit from their products and accelerate time to value. In most cases, the main beneficiary of the value offered by these solutions is the vendor, although there are some notable exceptions.

Let’s take a closer look at what these marketplaces really offer. They are modeled after the app stores offered by Apple, Google, and Microsoft. The intent is to enable users to instantly download free or fee-based apps to extend the value of their existing products. User familiarity with this approach is a double-edged sword: they immediately understand how it works and the value proposition, unfortunately their expectations as to what they will be getting are often not met.

Continue reading our Guest Blog entry on the OneStream Software site.

The Value AI Brings to Performance Management

The Value AI Brings to Performance Management

Craig Schiff , President and CEO, BPM Partners

Overview

For several years now performance management software vendors have been talking about AI (artificial intelligence) and more specifically machine learning. While of interest to technologists, it hasn’t been obvious why those in Finance, often the primary users of performance management, should care. It has now become obvious. Whether it is due to the vendors improving their implementation of the technology to deliver real value, or simply cleaning up their messaging, Finance is now sitting up and taking notice.

Predictive Analytics

The first AI-based capability gaining traction is predictive analytics. Put simply this capability improves the accuracy of forecasts, a key element of most performance management implementations. By utilizing machine learning (specifically deep learning) the system can generate a forecast based on historical data. Users can then tweak the forecast based on their own read of where the business is headed. Those reluctant to give up that much control of forecast creation can still benefit from predictive analytics. They can generate their own forecast and then have the system assess the probability of their forecast coming to pass. Some may say that predictive capabilities pre-date modern AI technologies. That is true, but what has changed is the accuracy. Earlier versions of predictive analytics used straightforward statistical analysis of the data to produce predicted outcomes. While the results may have been reasonable at a high level, they missed some of the details. For example in a business where the numbers go up and down on a seasonal basis older predictive capabilities might have been able to predict where the business would end up, but might have smoothed over the period to period fluctuations (see illustration below). While purchasers of performance management systems today aren’t saying ‘We need AI’ they are adding predictive analytics to their key requirements list perhaps without realizing that it is often powered by AI.

The next group of AI capabilities are at an earlier stage both in terms of market demand/acceptance and performance management product delivery. They include NLP (natural language processing), AD (anomaly detection), and RPA (robotic process automation).

Natural Language Processing

Natural language processing is gaining acceptance in the consumer market with devices such as the Amazon Echo, but what about in business applications? We are not there yet. Numerous vendors however are moving forward with support for natural language queries.  The ability to say to your performance management system ‘Show me the sales numbers for Europe for July’ should be quite compelling. After all, the current alternative is to select options from multiple pull-down menus or in some systems to create a scripted query to retrieve the values. The reluctance seems to be to sitting there and talking to your computer at work. Perhaps the new Surface headphones will make that process easier. What people are missing though is that  instead of saying it you can type your request in to a search-like box using business terms as opposed to writing a technical query. In terms of making performance data readily available to a larger group of employees natural-language queries have huge potential. Natural-language generation is another important element of NLP that can provide value. In particular, for the creation of narrative summaries that usually accompany the numbers (‘Sales this month of $ 1,360,000 were down 10% from last year at this time’) much time can be saved. Today creating these narratives is often a manual process with the potential for errors. With AI the system can automatically retrieve the sales data, calculate the variance from a prior period, and determine that sales are ‘down’ and not ‘up’.

Anomaly Detection

Anomaly detection may be less visible than predictive analytics and NLP, but it may be more valuable. This capability should be able to dramatically improve the quality of the data, which is key to a performance management system designed to provide one version of the truth that management can rely on. As the name implies this functionality spots data that is outside the expected normal range. In performance management where a significant amount of transactional source data is bulk-loaded into the system for reporting purposes this capability can both speed the process and improve the quality of the result. For example, if a particular cost center’s data for a certain account has been around 1,000 per month for many months and all of a sudden this month it comes over as 1,000,000 it will be flagged as an anomaly. More than likely someone incorrectly set the scaling factor in the mapping table. If this wasn’t detected and the error got buried in a consolidated roll-up the company could very easily be reporting inaccurate numbers. The same kind of anomaly detection can also work on numbers being keyed in directly. This capability is obviously critical. While some vendors do offer data quality functionality today, this AI feature will make it easier for others to join in while adding an additional layer of checks to existing solutions.

Robotic Process Automation

Robotic process automation seems to be lower on the delivery list for performance management vendors. Yet it would seem to be a big win in terms of making a system more intuitive, easier to use, and therefore ready to be rolled out to larger groups of users. What RPA does is automate  the steps in a repetitive multi-step process. So, for example if every month you need to load data, consolidate, run some reports, and notify a list of people that the reports are ready the system can do this all for you. It saves time but it also prevents you from inadvertently missing a step (for example forgetting to re-consolidate after loading the data and therefore producing reports with old data). More simply, a modified version of RPA can help you navigate through the system.  If you are a casual user of the system who only enters a budget once a year you may forget the steps the next time the budget rolls around. With this functionality the system can prompt you to proceed to appropriate next steps based on your prior usage pattern. So, after finishing your budget it can suggest you lock and submit your data, print a copy for your records, and notify your manager it is waiting for approval. Again, some systems do a version of this today but with AI it will become more accurate, more adaptable to your particular needs, and more widely available throughout the system.

Vendors

Every key vendor that we follow in the performance management space has either delivered AI capabilities or has them under development with plans for an initial release in the near future. To see which vendors have delivered AI, and more specifically which of the particular features described above, check out our Vendor Snapshots and Vendor Landscape Matrix.

Adaptive Insights to be Acquired by Workday

Craig Schiff , President and CEO, BPM Partners

Overview

Adaptive Insights announced that they have a reached an agreement to be acquired by Workday. The deal is expected to close in October of this year. Let’s take a look at what this means for the companies involved, their customers and prospects, and the performance management industry in general.

The price that Workday is paying of $ 1.55 billion is one of the highest ever for a performance management vendor. It is a significant multiple of Adaptive Insights’ trailing 12 -month revenues of  $ 114 million. This valuation is both indicative of the growing importance of performance management solutions (which was also confirmed by our 2018 BPM Pulse Survey) and the strategic importance of this acquisition to Workday to strengthen their product portfolio.

Products

Adaptive Insights (for Finance) has been one of the more successful standalone performance management products with almost 4,000 customers worldwide. Just this past year they introduced a product aimed at sales planning: Adaptive Insights for Sales, and launched their Elastic Hypercube technology to better handle the volumes of data and complexities in larger companies. They had recently filed for an IPO. It is clear why they were a prime target for a vendor looking for an established, robust planning solution to acquire.

Why was Workday looking for a new planning solution? They recognized a while ago that performance management was a key missing ingredient from their financial and human capital management solutions. So, they did what many others have done – built their own. However, just like SAP, Oracle, and IBM before them, they realized  their homegrown solution was years behind the market leading solutions and would take significant time and money to catch up. While they partnered with several of the stand alone performance management vendors, their vision of an all-in-one business management solution was not coming to fruition.

Strategy

With Adaptive Insights looking to raise capital through an IPO the timing was right for Workday to swoop in and acquire an ideal solution for the planning needs of their customers. There is redundancy and overlap with the existing Workday Planning solution, but they have a strategy to address that. The existing solution will be focused on the HR/human capital management side of the equation and Adaptive Insights will play to its strength in financial management. The current Workday sales force will introduce the Adaptive Insights product set into up market opportunities. The current Adaptive Insights sales force will focus on the rest of the market. The Workday and Adaptive Insights products will be “‘integrated” over time at a UI/common look and feel level, meta data, data, and security levels.

Final Thoughts

At this early stage there are many things that are not clear. Will Workday focus its efforts on selling Adaptive Insights to its existing customers and to new accounts that are looking to purchase their full suite, or will they also actively compete in the open market for standalone planning deals? I would guess it would be the former, but we just don’t know. With Workday’s historic focus on the large/enterprise market where will the midmarket fit into their overall strategy going forward? Only time will tell.

For now, there are some clear winners: Workday – for filling an important gap in their offerings with a well-regarded solution, Adaptive Insights – for becoming part of a larger organization with greater resources at its disposal and a mostly complementary product set, as well as achieving an impressive valuation, Workday customers – for having a robust new performance management solution available to them, although they need to keep an eye on integration status, Adaptive Insights competitors – for the potential to take advantage of this period of change and uncertainty, and the performance management industry in general for confirmation of its growing importance and value.  In addition, we’re confident that Adaptive Insights customers will be well taken care of, based on our direct experience with Adaptive  since its launch 15 years ago, and confirmed by their consistent high marks in our annual  BPM Pulse customer satisfaction survey.

Commentary on Tagetik Acquisition

Tagetik Logo (PRNewsfoto/Tagetik)

Tagetik Acquisition by Wolters Kluwer
Craig Schiff , President and CEO, BPM Partners

Products
Tagetik, a leading corporate performance management (CPM) vendor has signed an agreement to be acquired by Wolters Kluwer, a much larger software and professional services firm. One of our concerns in most mergers and acquisitions in this industry is the fate of overlapping product lines. Typically some products get sunsetted leaving those customers in the lurch, or the vendors spend an inordinate amount of time merging products to create a new product that everyone needs to eventually migrate to. Fortunately, that will not be the case here as there is little to no overlap. As a matter of fact, the two companies offer complementary products. Tagetik brings a comprehensive corporate performance management solution to the table, while Wolters Kluwer has offerings for audit and tax. These solutions will be combined into a new Corporate Performance Solutions (CPS) business unit in the Wolters Kluwer Tax & Accounting Division. The renamed product, CCH Tagetik, will join TeamMate (audit) and corporate tax products in this business. The intent is to provide a full range of solutions to the office of the CFO starting from the output of ERP systems to final disclosure. Existing customers of Tagetik will now have additional products available to expand their capabilities, although for now there are no announced integration plans.

Operations
From an operational perspective these acquisitions often result in high personnel turnover, or at least months of distraction as the two vendors try to integrate their organizations. In this instance Tagetik will continue to run as a self-contained entity within the new CPS business unit. Senior Tagetik management is planning to stay on, as are the current co-CEOs and original founder of the company. Minimal turnover of the rest of the staff is anticipated and no staffing cuts are currently planned. Things could always change, but as of now it appears that there will be minimal disruption to Tagetik’s day to day operations.

Final Thoughts
Tagetik has always run fairly lean which has resulted in missed sales opportunities due to limited coverage as well as in some instances of being short-handed on the implementation side during periods of rapid growth. Having the significant resources of Wolters Kluwer available to Tagetik should help in these areas. From a geographic perspective the Tagetik business has had a European focus while Wolters Kluwer tax and accounting has had a North American one. The two vendors working together, and combining their offices around the world, should be able to expand the global reach for all of their products.

While anything could happen, we are cautiously optimistic that both companies as well as their customers and prospects will benefit from this merger.

Predictions for Performance Management in 2017

Performance Management in 2017 – A Changing Landscape
Craig Schiff , President and CEO, BPM Partners

We believe this year will see some of the most dramatic changes in performance management since the acquisitions of 2007 (IBM/Cognos, Oracle/Hyperion, SAP/OutlookSoft) remade the vendor landscape. We’re not saying that all or even most of the changes will involve mergers and acquisitions, although some will, but the available choices in 2017 will look quite a bit different than they did even just last year.

Continuing Trends
The basic feature/function trends that we have seen over the last 12-18 months will continue: a focus on ease of use, integration with Office, support for operational as well as financial planning, expansion of analytics capabilities, vertical applications, and the continued move to the cloud. What will be different are the available products, and in some cases, the vendors offering these products.

New Cloud Product Options
In the past year or so the largest vendors have jumped into the cloud-based performance management space with both feet. While continuing to support their legacy on-premise offerings they have brand new offerings that are cloud-only. Over time this will greatly expand the options available for companies looking for a true cloud-based performance management solution. For now though, most of these products are first generation solutions that can’t yet match the feature robustness of their on-premise predecessors. Several other vendors with established on-premise products have introduced or ramped up the marketing effort for hosted versions of those same products. In fact it is hard to find a successful vendor today that doesn’t offer a true cloud or hosted option. The cloud buyer has more options than ever. In addition, those that aren’t ready today to make the move to the cloud can purchase an on-premise product from a vendor that will be able to offer them a clear path to the cloud when they are ready. However, when specifically looking for cloud-based performance management keep in mind that the established cloud-only performance management vendors have the most mature product sets having gone through the most upgrade and enhancement iterations.

New Vendors
What about the vendors themselves? There are recent changes to the vendor landscape that are beginning to show themselves and other changes that we anticipate happening as the year progresses. Let’s start by looking at new vendors. Although some would argue this is a mature, established market with a high barrier to entry we have seen new vendors entering this market every year for a while now. This year is no exception. Two successful European performance management vendors that have been dabbling in the North American market for the past year or two should be coming into their own this year. Both have staffed up their U.S. headquarters with experienced senior teams ready to challenge the existing players. They also approach the market slightly differently than the competition. As opposed to offering a handful of fully developed modules these vendors offer a performance management platform with a library of frameworks or models that cover the basics today. The promise is that the library of these application models can quickly grow covering a broader range of solutions that can target specific processes, functional areas, or verticals. By their nature these models aren’t as fleshed out as fully developed modules, but that also makes them more customizable. In addition these vendors start with a built-in operational focus supported by expanded business intelligence and analytical capabilities.

Vendor Challenges
Additional changes we expect to see to the existing vendor landscape in 2017 are based on observations we made over the past year. These observations fall into three main categories: vendors that were too successful for their own good, vendors that are looking to grow more rapidly, and vendors that were struggling. Let’s start with the vendors that were ‘too successful’. Is that even possible? Can you have too much success? The answer is yes, because if not handled properly it can lead to a quick flameout. At least two vendors fit into this category. One has had several years of rapid growth with many successful customers. The problem is they fell into the trap of overselling the product’s out of the box capabilities. While their many customers have used their product in many different ways, the pre-built functionality is somewhat limited. This offers the flexibility to address a wide range of needs, but puts them in a weaker position when competing with vendors with more robust solutions for specific processes. Their sales force, flush with success, may not have highlighted this distinction when competing with these other vendors. The problem is that this created customer expectations that the product was simply not designed to deliver on. Result: unhappy customers. This can and did lead to management distraction while trying to turn around these situations. It can also lead to highly vocal negative references. If this continues this vendor may see its’ momentum grind to a halt. We’ll be keeping an eye on this vendor to see if their sales force has learned their lesson. The other vendor in this category was simply not prepared for their growth and success. We have seen them win many deals with a solid product, but then fall down on the implementation side. They simply didn’t have enough experienced in-house consultants or partners. As in the first case this resulted in management distraction and negative references. It was also costly having to provide free expert consulting to fix problems created by junior consultants or clients left to their own devices. The vendor does recognize the problem and has added resources, but the experience part of the equation requires time. We’ll continue to watch to see if they have solved their problems in this area. We hope both of these vendors remain as viable options.

Mergers and Acquisitions
On a somewhat more positive note there are vendors that have been very successful and looking to quickly build on that success. While organic growth is an option it can take too long. We have seen vendors in this category looking to address specific verticals, market segments, or functionality gaps by acquiring smaller vendors that have had narrowly focused success in those areas. This type of acquisition would benefit both parties. The smaller vendor would have access to a stronger sales and marketing team and the larger vendor would be able to quickly enter a new market. We anticipate at least one merger of this type in the performance management space in 2017. There are also several vendors around the edges that haven’t achieved the levels of success desired by their shareholders. They may have the latest technology innovations but limited domain expertise and related functionality built into their products. Other vendors have very feature-rich product sets but haven’t kept up on the technology front and now have products that are viewed as tired and outdated by the market. Again, a merger of vendors in this category could clearly benefit both, but would require significant product development work to achieve those benefits. We expect to see at least one merger of this type in 2017.

In summary, performance management in 2017 will see new product options, new vendors, vendor mergers, and a couple of vendors addressing their issues or beginning to fade away. The opportunities and choices for performance management buyers are greater than ever, but so are the risks. Go in with your eyes open, leverage experts, and thoroughly evaluate your options.

Ten Characteristics of a Good KPI

Ten Characteristics of a Good KPI
Wayne Eckerson, Founder, Eckerson Group

KPIs
There’s a lot of talk these days about key performance indicators (KPIs). They are the backbone of scorecards and dashboards which have become an irresistible way for organizations to present performance information to executives and staff. Unfortunately, BI developers seems to focus more on creating visual metaphors (i.e. dial, gauges, arrows, etc.) than understanding what constitutes a good KPI that delivers long-term value to the organization.

Part of the problem is that people use the terms “KPI” and “metric” interchangeably. This is wrong. A KPI is a metric, but a metric is not always a KPI. The key difference is that KPIs always reflect strategic value drivers whereas metrics may represent the measurement of any business activity.

When developing KPIs for scorecards or dashboards, you should keep in mind that KPIs possess ten distinct characteristics. Although metrics may exhibit some of these characteristics, good KPIs possess all of them.

#1. KPIs Reflect Strategic Value Drivers

KPIs reflect and measure key drivers of business value. Value drivers represent activities that when executed properly guarantee future success. Value drivers move the organization in the right direction to achieve its stated financial and organizational goals. Examples of value drivers might be “high customer satisfaction” or “excellent product quality.”

In most cases, KPIs are not financial metrics. Rather, KPIs reflect how well the organization is doing in areas that most impact financial measures valued by shareholders, such as profitability and revenues. As such KPIs are “leading” not “lagging” indicators of financial performance. In contrast, most financial metrics (especially those found in monthly or annual reports) are lagging indicators of performance.

#2. KPIs Are Defined By “Executives”

Executives define value drivers in planning sessions which determine the short- and long-term strategic direction of the organization. To get the most from these value drivers, executives need to define how they want to measure their organization’s performance against these drivers. Unfortunately, too many executives terminate strategic planning sessions before they define and validate these measurements, otherwise known as KPIs. The results are predictable, giving proof to the adage, “You can’t manage what you don’t measure.”

#3. KPIs Cascade Throughout An Organization

Every group at every level in every organization is managed by an “executive” whether or not the person carries that title. These executives may be known as “divisional presidents,” “managers,” “directors,” or “supervisors,” among other things. Like the CXOs, these “executives” also need to conduct strategic planning sessions that identify the key value drivers, goals, and plans for the group. At lower levels, these elements may be largely defined and handed down by a group higher in the hierarchy.

However, in every case, each group’s value drivers and KPIs tie back to those at the level above them, and so on, up to the level of the CXOs. In other words, all KPIs are based on and tied to the overarching corporate strategy and value drivers. In this way, top-level KPIs cascade throughout an organization, and the data captured by lower-level KPIs roll up to corporatewide KPIs. This linkage among all KPIs, which can be modeled using strategy mapping software, supports flexible analysis and reporting at any level of granularity at any level of the organization.

#4. KPIs are Based on Corporate Standards

The only way cascading KPIs work is if an organization has established standard measurements. This is deceptively hard. It can take organizations months if not years to hash out the meaning of key measures or entities, such as “net profit” or “customer.” Functional representatives at a major U.S. airline spent months trying to agree on the meaning of “flight” and “segment” and their entire analytical infrastructure was put on hold until they achieved consensus. In some cases, organizations can only agree to disagree and use meta data to highlight the differences in reports. Only with enough top executive support (i.e. CEO) can organizations overcome the political obstacles associated with standardizing definitions for commonly used KPIs.

#5. KPIs are Based on Valid Data

When pressed, most executives find it easy to create KPIs for key value drivers. In fact, most industries already have a common set of metrics for measuring future success. Unfortunately, knowing what to measure and actually measuring it are two different things. Before executives finalize a KPI, they need to ask a technical analyst if the data exists to calculate the metric and whether it’s accurate enough to deliver valid results. Often, the answer is no! In that case, executives either need to allocate funds to capture new data or cleaning existing dirty data. Or they need to revise the KPI. Providing cost estimates for each approach will help executives decide the best course of action.

#6. KPIs Must Be Easy to Comprehend

One problem with most KPIs is that there are too many of them. As a result, they lose their power to grab the attention of employees and modify behavior. According to TDWI research, the median number of KPIs that organizations deploy per user is seven. More KPIs than this makes it difficult for employees to peruse them all and take requisite action.

In addition, KPIs must be understandable. Employees must know what’s being measured, how it’s being calculated, and, more importantly, what they should do (and shouldn’t do) to positively effect the KPI. This means that it is not enough to simply publish a scorecard; you must train individuals whose performance is being tracked and follow up with regular reviews to ensure they understand and are acting accordingly. As one IT manager said, “Measurements without meetings is useless.”

#7 KPIs Are Always Relevant

To ensure that KPIs continually boost performance, you need to periodically audit the KPIs to determine usage and relevance. If a KPI isn’t being looked at, it should probably be discarded or rewritten. In most cases, KPIs have a natural lifecycle. When first introduced, the KPI energizes the workforce and performance improves. Over time, the KPIs lose their impact and should probably be revised. Most organizations review and revise KPIs quarterly. 

#8. KPIs Provide Context

Metrics always show a number that reflects performance. But a KPI puts that performance in context. It evaluates the performance according to expectations. The context is provided using 1) thresholds (i.e. upper and lower ranges of acceptable performance), or 2) targets (i.e. predefined gains, such as 10% new customers per quarter), or 3) benchmarks, which can be based on industry-wide measures or various methodologies, such as Six Sigma. In addition, most KPIs indicate the direction of the performance, either “up” “down” or “static”.

#9. KPIs Empower Users

It’s commonly stated that you can’t manage what you don’t measure. But a corollary is that you can’t manage what you don’t reward. To be effective, KPIs must have incentives attached them. Almost 40 percent of organizations surveyed by TDWI say that they restructured incentives systems when implementing KPIs. However, it’s important not to link incentives to KPIs until the KPIs have been fully vetted. Often, KPIs must be tweaked or modified before they have the desired effect.

It’s also critical to revamp business processes when implementing KPIs. The business process needs to empower users to take the appropriate action in response to KPIs. The last thing you want is informed, but powerless users. That’s a recipe for disillusionment and poor morale. Forty percent of organizations said they modified business processes when implementing KPIs, according to TDWI research.

#10. KPIs Lead to Positive Action

Finally, KPIs should generate the intended action – improved performance. Unfortunately, many organizations allow groups to create KPIs in isolation. This leads to KPIs that undermine each other. For example, a KPI for a retail store might track stock outs (where it doesn’t have enough merchandise on hand to meet demand) but the regional warehouse is incented to carry minimal inventory. If the regional warehouse does too good a job, it may not have enough inventory to keep the retail shelves stocked when there is a surge in demand for certain merchandise.

Another problem is human nature. People will always try to circumvent KPIs and find loopholes to minimize their effort and maximize their performance and rewards. Good KPIs are vetted before deployed and closely monitored to ensure they engender the intended consequences.

Conclusion

If you have read this far, I hope you are convinced that KPIs are a breed apart from your run-of-the-mill metric. While an organization may have hundreds, if not thousands of metrics, it should only have a few dozen KPIs that focus employees on the key activities that deliver the most value to the organization.

In essence, KPIs are communications vehicles. They enable top executives to communicate the mission and focus of the organization and grab the attention of employees. When KPIs cascade throughout an organization, they ensure everyone at every level is marching together in the right direction to deliver the most value to the organization as a whole.

Wayne Eckerson’s book on this subject, Performance Dashboards, is available for purchase.

For assistance with your own dashboard and KPI efforts learn more about BPM Partners’ offerings in this area.