Well, your organization is up to implementing KPIs? Management is convinced that just looking in the back mirror when steering on financial KPIs only is insufficient? Your management screams for KPIs to help and guide them as they are their early warning system?
Congratulations you can start your KPI project. But how to approach this?
Most companies cascade the KPIs in a hierarchical manner. KPIs derived from strategy are translated to lower level into the organization using the organizational structure. That is wrong. Using this way of cascading KPIs to the shop floor will leverage silo thinking. Every function will do it utmost best to be efficient and effective reaching company ambitions. For instance, Sales will try to sell as much as they can and Supply Chain will manage inventory in the most efficient way. If both are successful it can lead to a lot of stress in the organization, due to no-sales hits.
Cascading of KPIs should be done through Customer – Customer processes. With Customer – Customer processes you create goal congruence. Everybody in the chain understands the ultimate goal of this chain and knows how to contribute to the success of it. It is amazing that a lot of companies don’t understand and manage these Customer – Customer processes. If you ask which ones exist and who is responsible for them, you get blurry answers. In other words, you have entered a silo thinking organization that is trying to improve performance in their silo’s, but is missing the link to the real chain and customers.
Let’s finish with clarifying what a silo thinking company looks like by telling you a joke. An old lady sits in the park and is watching two guys working. The first guys digs a hole in the ground and the second guy is filling the hole again. The lady is astonished. This continues a couple of times and the old lady raises a question. Why is one of you digging a hole and the other one is filling it up again? Well, said one of the guys ‘’Our colleague that normally puts in the tree, is sick today’’.
The funniest thing is. Both get their bonus, since the first guy digs 8 holes in an hour, and his target is 6 and the second one fills holes in 7 minutes where his target is 10 minutes. Everybody gets rewarded, except the customer. This is silo thinking in optima forma.