Performance management

Service KPIs: Measuring Unmeasureables

How do you got about measuring those things that are more elusive than counting the output of your Widget Factory? Join Jed and Bob as they discuss how to tackle this common problem.

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Service KPIs: Measuring Your Unmeasureables

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Measures in service businesses have some fundamental differences from those found in manufacturing or production businesses. Below we discuss Service KPIs (Key Performance Indicators) in the following context:

What is a service business?
Why measure Service KPIs
How service businesses differ from a widget factory.
Four steps to measuring the seemingly unmeasurable

What is a Service Business?

People most often associate Service Businesses with those that have a retail facing customer service offering. In fact, the definition is broader than that:

One where the product or outcomes are less tangible than other goods.
Businesses where work is performed, or expertise is offered.
Often are information based.
Can be temporary in nature – for example, when you buy a lamp, you keep that good for some period of time – perhaps indefinitely. When you buy a massage, you pay for the service, and afterwards all that is left is your memory of the service.
Service sector businesses are much faster growing in advanced economies than are the manufacturing and/or resource sectors.

Why Measure Service KPIs

To know how your business is doing, and how to improve it.
To build a business case for a course of action, or additional resources.
To determine the impact on clients or customers.
To improve objectivity, and reduce reliance on opinion and rumor.
To establish accountability amongst teams or team members.
To celebrate success.

How Service KPIs Differ From Other Business KPIs

There are typically longer cycle times in service businesses.
There are more complex process maps in many cases. There may be many more boxes, and many more decision points. As such quality metrics become less clear.
The criteria for success and progress is more subjective.
There is usually a need to go beyond numbers, and to also use descriptive qualifiers.

Four Steps to Establishing Service KPIs

Identify Desired Results.
Identify Behaviors That Drive Those Results
Quantify and Qualify both results and behaviors and actions wherever possible.
For each metric establish the BATT.

Identify Desired Results When Establishing Service KPIs

In a manufacturing setting, you count how many widgets you make in a given time period. Your Service KPIs should be based on the ultimate desired outcomes of your efforts. In some cases, this can only be measured in years or perhaps even decades; which is why you need to also look at process, activities and behaviors.
If you are having trouble identifying your results or outcomes, ask the following questions:
- Who are your “customers”, and what do they expect from you? Do not get caught up in a retail definition of customer. A customer is anyone who relies on you to provide them with something.
- If you got hit by a bus, who would notice, and what would they miss?

Identify Behaviors That Drive Results

If your outcomes or results are several years removed from what you do daily, then you need to determine what steps lead to those outcomes:

What are the behaviors, actions or activities you suspect drive the results or outcomes you produce?
What is the change or effect of those behaviors?

Quantify & Qualify to Establish Service KPIs

Quantify

In some cases, you will be able to count the output of your results, actions or behaviors.

Typical Service KPIs fall into the categories of:

Cost
Cycle Time
Timeliness

Qualitative

In many cases, your Service KPI will be harder to count. In such cases, you need to evaluate or judge the output or behavior:

Quality or satisfaction. What is the perceived quality, or level of satisfaction of the service provided?
Sometimes a descriptive statement can take the place of a hard metric when establishing Service KPIs:
- Describe in detail the desired outcome, and then
- Compare against current performance.

BATT

Baseline – what has performance historically been. The baseline (as well as Actual and Target) can be:
- a hard metric
- a perceived level of satisfaction
- a perceived level of performance
- level of quality.
Actual – what is the current performance?
Target – what is the desired performance?
Timelines – over what period of time are these things measured?

Three things to remember about Service KPIs

It’s definitely harder to measure in service businesses, but don’t give up.
Don’t count stuff for the sake of counting. Your Service KPIs should help you better run the business, and make better decisions.
Don’t spend more time measuring than doing the work. It is easy for Service KPIs to take on a life of their own. Make sure you keep it simple.

Watch the ‘3-Minute Crash Course’ about Service KPIs (CLICK THE ARROW TO START THE VIDEO):

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Employee Discipline Procedures: Progressive Discipline

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Below we talk about the following aspects of Employee Discipline Procedures:

Setting the stage for Employee Discipline Procedures
Issuing Warnings
The Progressive Discipline Meeting
Taking Corrective Action

Setting the Stage for Employee Discipline Procedures

Many managers fail to do their homework prior to launching in to Employee Discipline Procedures. There are some things to do ahead of time:

Articulate clear expectations. You cannot take an employee to task on things they were not aware they are accountable for. There are a number of mechanisms to articulate those expectations:

Job descriptions
Performance agreements
Regular one on one meetings

Document everything. A key part of Employee Discipline Procedures is the paper-trail. You should have a file on every employee, and that file should contain details of all communication pertaining to performance.

Notes about informal discussions
Any emails pertaining to performance.
Documentation from more formal interventions.

Ensure you are prepared to focus on the behavior, not the person. If you make it personal, it will much more difficult, and you may incur needless legal risk.

Have a Progressive Discipline process. You must being your Employee Discipline Procedures knowing the various steps, and how it might end.

Progressive Discipline Process

Your first step in Employee Discipline Procedures is to check with your HR department or person to fully understand what systems and processes are currently in place. In the absence of any such tools, use the following as a starting point for your Employee Discipline Procedures:

Ensure expectations are clear.
Highlight the gap between desired and actual performance. You need to be as specific as possible when describing this gap.
Issue verbal warning – Tell the person specifically what you want them to change, and in what time frame. If there is a knowledge or skill gap, you will need to assist the person in bridging this gap. Write down the details of the verbal warning (date, time, discussion points, and any witnesses present).
Issue written warning with consequences. If the performance has still not improved, you need to issue a formal written warning. This should include very clear consequences as to what will happen if performance does not improve. Again you need to be very specific about the gap between desired performance and actual performance. You also need to specify timelines for improvement, and the next meeting.
Issue second written warning. This will have all the elements of the first letter, but also include a much more urgent sense of the consequences of continued poor performance.
Take corrective action – a demotion, a suspension, or termination. At this stage it will be largely dependent on the circumstances, but you need to follow through on the promised consequences in the previous warnings.

How to Issue Warnings in the Employee Discipline Procedures

Highlight the gap between the desired performance and the actual performance.
Issue a verbal warning. Be as specific as possible, and make suggestions for improvement. You need to document the verbal warning with the date and time, the details of the conversation, the follow up actions discussed, and any witnesses to the conversation.
Issue a written warning. Be specific. Be clear on the consequences
Issue further warnings after an adequate period of time has passed to allow him/her to make the required improvements.

The Discipline Meeting

What to say:

Clarify the process, and what is about to happen
Provide in as much detail as possible with behavioral examples the deficiencies of performance or transgression that has brought everyone to this meeting.
Point out the negative impact to the organization and to the people that the undesirable performance has.
Describe in detail the desired behavior or action, and reference when and where this has been made clear to the employee previously

How to Say It:

Present case in neutral language
Be calm
Be as specific as possible (when, where, how many, etc.)
Focus on the facts
Be professional

Ask the employee to reply

Listen carefully
Ask for clarification if necessary.
Ask the employee for comments or potential solutions to resolve the issue.

Taking Corrective Action

Corrective action as part of your Employee Discipline Procedures, can take a variety of forms. You need to determine what will be most likely to solve your problem. In some cases, it may be suspension, in others it may be termination. One thing you need to ensure when you get to this stage is that there are no surprises to the employee. There should have been adequate warning and notice before you ever advance to this stage of the Employee Discipline Procedures.

3 Things to Remember about Employee Discipline Procedures

Document everything, every time, always. You need this to mitigate the risk of harassment or wrongful dismissal claims. It is also good practice.
Don’t over or under react to a situation. Ensure the action you take is commensurate with the nature of the transgression
Don’t make it personal. It makes it much easier for all concerned if you can adequately detach personalities from the situation

Watch the ‘3-Minute Crash Course’ about Employee Discipline Procedures (CLICK THE ARROW TO START THE VIDEO):

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When Command and Control Works

It seems to me that Command and Control as a management style has gotten a bum rap. You’ve heard the disparaging remarks, “She’s a complete command and control style manager” – implying there is something wrong with that.

I think such comments display a startling lack of understanding of what leaders are required to do in organizations. Command and control is a very useful managerial tool for certain situations.

People love to use fire-fighting as an analogy to describe modern management practice. I would challenge anyone to go find himself a Fire Chief and ask him/her if command and control is a bad idea.

When a building is burning and lives are at stake, the Fire Chief very much relies on command and control as the appropriate management tool for that situation. Can you imagine the fire department showing up at an emergency, and the Fire Chief requesting that everyone break up in study groups, to hold hands and sing camp songs?

“OK – everyone brainstorm ideas for how we should tackle this, and I’ll give a special prize to the group that comes up with the best idea. Make sure everyone participates equally, and remember that everyone’s feedback is valuable. This is an excellent opportunity to reinforce how much we value each other, and I’ll float between the groups to help facilitate.”

Glad it’s not my house on fire. I want the Fire Chief standing on top of chair barking out orders as fast as she can to get the situation under control. I also want the Firefighters to listen carefully to the orders being dispatched, and execute as they’re being instructed to do.

When they are back at the Firehall, and practicing for such emergencies, or doing community outreach, then the Fire Chief would be well advised to pull a different tool out of his box, and to engage his people in a more collaborative style.

The problem for people that disparage command and control is that they confuse this very important managerial style with a lack of respect. Lack of respect is never appropriate, but many times it is a leaders job to tell her direct reports in no uncertain terms what they are required to do. Setting clear expectations, holding people to account for those expectations, and administering the appropriate consequences are what we pay managers to do.

Command and control is one legitimate tool to get this done.

Awash in Data

Twenty or so years ago, organizations would hire guys like us to come in and help them define metrics and measures. Often times there were not adequate data collection and storage systems, so we ended up counting a lot of things manually, and then getting our crayons out to hand draw graphs to represent these indicators.

Skip ahead in time a couple of decades, and organizations are still hiring guys like us to help them with the measures and metrics, but now its usually because they have thousands upon thousands of data points, but no ability to turn this data into wisdom, and ultimately better business decisions.

Blame Microsoft. They made it easy to have powerful spreadsheets and databasing capability on every desktop relatively cheaply. Now the guy who runs the janitorial service at the office has a PC with more computing power than the Space Shuttle, and 500 indicators he’s tracking.

We also see it in any professional sport. Did you know that in games that take place on the road, in the Central Time Zone, on odd-numbered days, in the same month as the coach’s birthday, when the starting line-up all had chicken for the dinner the previous night, the team has posted a win 58% of the time?

Now that’s valuable data.

Professional Sports organizations are very fat with cash – they can afford to waste some on useless statistics. Your organization probably can’t.

You need to figure out what results your organization is trying to produce, and then determine the key drivers of those results. For many organizations, the goal is to make money while minimizing various forms of risk. What are the simple key drivers of these things?

When I worked in the Retail Food industry we were very good at making a really simple business far more complicated than it needed to be. It seems to me there are only two drivers of the business that impacted all of the other things we were tracking:

Did we have what the customer wanted on the shelf when s/he wanted it?
Once that customer had everything she wanted in the cart, did we make it as easy as possible for her to part with her money?

There were literally hundreds of other things we were tracking, and some of them were actually valuable; but only these two things really mattered. Only the two things above would impact all the important result indicators.

What are the key drivers in your business?

Building Key Performance Measures

Join Jed and Bob as they discuss David Parmenter’s work on building good Key Performance Indicators, and how KPIs are different from other measures that are currently in use in many organizations.

Watch the ‘Building Key Performance Measures’ Video (13 mins 10 sec):

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Key Performance Measures

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Every business has some performance measures, but do they have KEY performance measures? Below we talk about

Why all organizations should have Key Performance Measures (or KPIs)
The difference between Key Performance Measures (or KPIs) and simply Performance indicators, and Key Result Indicators
We discuss David Parmenter’s four foundation stones for implementing and using Key Performance Measures (or KPIs)
Parmenter’s 12 step model to developing and using Key Performance Measures (or KPIs)

Why Your Organization Needs Key Performance Measures (or KPIs)

You need good measures to know where you stand as an organization.
People need to know “their score”
Key Performance Measures (or KPIs) are a necessary ingredient of continually improving performance.
Many organizations make measurement irrelevant by getting lost in a sea of data and numbers that nobody understands, or that don’t tell a story.
Key Performance Measures (or KPIs) are a necessary part of your Balanced Scorecard

KRAs, PIs and KPIs

David Parmenter is one of the foremost thinkers on Key Performance Measures (or KPIs). Here is how he defines various types of indicators:

Key Result Indicators: tell you how you have done in a perspective
Performance Indicators: tell you what to do
Key Performance Indicators: tell you what to do to increase performance dramatically

Seven Characteristics of True Key Performance Measures (or KPIs)

They are non-financial
They are measured frequently (hourly, daily)
Acted on by the CEO and the Management Team
There is a clear understanding of the measures by all
Assigns clear accountability
It has a significant impact on performance and results
Positively impacts other performance indicators.

Four Foundation Stones for Implementing and Using Key Performance Measures

Partner with staff, unions, key suppliers and key customers for the development of Key Performance Measures
Transfer of power to the front line for the influence and monitoring of Key Performance Measures
Integration of measurement, reporting, and performance improvement.
Linkage of performance measure to strategy.

Twelve Step Model for Implementing and Using Key Performance Measures

Establish and maintain senior Management Team commitment
Establish a Project Team
Establish a “just-do-it” culture and process
Set up holistic KPI development strategy
Market the KPI system to all employees
Identify Critical Success Factors (“CSFs” or Key Result Areas)
Record measures in a database
Pick team level performance measures
Select organizational winning KPIs
Develop reporting framework
Facilitate use of KPIs
Refine KPIs to maintain relevance

David Parmenter describes each of these steps in much more detail in his book Key Performance Indicators: Developing, Implementing and Using Winning KPIs (John Wiley & Sons, 2007) OR http://davidparmenter.com/

3 Things to Remember About Key Performance Measures

Don’t let your metrics take on a life of their own. Having hundreds of measures that people don’t understand or use is a waste of time
You can do this at the departmental or regional level. If your organization is not ready to use KPIs on a widespread basis, you can do it in your area.
Do not discount Key Result Indicators – you need to understand your results and what you are achieving. Just ensure you continue to drive those results through the use of Key Performance Measures.

Watch the ‘3-Minute Crash Course’ about Key Performance Measures (CLICK THE ARROW TO START THE VIDEO):

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A Zero Accountability Corporate Culture

Several years ago, I became involved in a finance audit with a public sector client. These things are about as much fun as a boot in the butt with a frozen mukluk in any organization, but public sector organizations are even worse because of their inherent risk aversion.

It turns out the finance clerks were spending a ridiculous amount of time processing expense accounts for the considerable number of employees that were constantly travelling for business purposes.

Without doing the necessary internal investigating first, I got the bright idea to check with the relevant tax authorities as to whether we could simply offer people a per diem and dispense with all the $10 lunch receipts that were clogging up the system.

The federal tax agency did indeed have a provision for this that I thought would solve a considerable problem, and make everyone’s lives easier.

I was incredibly wrong. I hadn’t been this wrong since I predicted Whitney Houston’s big comeback.

After lobbying hard inside the Finance group for such a change to be implemented, I was told in no uncertain terms, that we couldn’t do this because the people who didn’t spend the entire amount would pocket the difference, and that would be unacceptable. Never mind that the amount was only about $50/day for a person on the road to pay for breakfast, lunch, and dinner.

Further, this policy could not be adopted because two senior managers had been caught abusing their expense accounts while travelling for business.

The VP of Finance initiated a root cause analysis of this problem, and concluded they did not have adequate control measures, and poor policy on expenses accounts.

He got it wrong. He was treating a symptom of a much greater problem. The root cause of his problem was a corporate culture with zero accountability. Had a similar expense account abuse taken place in the private sector, the offending employees would have been terminated with cause, and common sense on a per diem expense policy would have prevailed.

Instead the VP of Finance chose to treat a symptom of a far larger problem by adding more bureaucracy. He also chose to disregard the thousands of hours of labor required to process lunch receipts. It’s a good thing he didn’t have the burden of worrying about shareholder value.

So instead of addressing the root cause, the Finance Department spent months rewriting the expense account policies, and ultimately came up with a completely ridiculous 75 page document that all employees with expense accounts were expected to adhere to.

Another genius example of your tax dollars hard at work.

Firing People as a Leading Indicator of Safety

Here’s an extreme example of the power of leading versus lagging indicators: plane crashes. Every now and then, a plane might just fall out of the sky with no advance warning, but most often the cause was entirely predictable, and could have been caught by some leading indicator of trouble. The tragic lagging indicator is when a plane hurls into the side of a mountain.

Now, to be fair, the airline industry has an outstanding safety record, and their ability to catch problems before they turn into catastrophe is something many other industries would be well-advised to study.

However, a recent news article by the Detroit Free Press got me to thinking about leading indicators of airline disaster. The article was about an Air Traffic Controller who was caught watching a movie (Cleaner, starring Samuel L. Jackson, if it matters), rather than tending to the airplanes he was supposed to be watching. I am going to go out on the limb here and say that the number and amount of movies watched while on duty by Air Traffic Controllers is a pretty clear leading indicator of plane crashes.

Once this was made public, the United States Federal Aviation Authority naturally took steps to suspend the Controller in question and his boss (even though they should have fired them both), and has launched an investigation. And the pundits have all started to weigh in on the impact of goofing off at work.

In November of 2010, Salary.com did a survey that revealed that 36% of us waste two or more hours at work every day. If you think your organization has any significant number of people making up that 36%, then it should be a pretty clear leading indicator of your pending implosion as a viable organization.

But back to the Air Traffic Controllers.

Jonathan Spira, an analyst that has studied goofing off at work (sounds like a fun job) said about this situation: “Clearly, if someone is watching a movie, they are bored, tired, distracted or somehow unable to perform his job.”

What Mr. Spira missed is that the person goofing off might just be an idiot who needs a kick in the ass. Such as is the case with this Air Traffic Controller. If this problem is widespread (which the US FAA is investigating currently), then I am going to suggest another leading indicator for airline safety:

The number of Air Traffic Controllers disciplined or fired is a leading indicator of improved air traffic safety.

Who says Ronald Reagan is dead?

Now if you really want to know what happens in the control tower, click on this week’s video clip, below: