Operationalize your KPIs
Defining the right KPIs (Key Performance Indicators) alone won’t get you where you need to go. The biggest challenge is taking data and using it to continuously learn and improve, and eventually achieve better performances. Intertwining KPIs and (big) data with the daily process of continuous improvement using so-called PDCA improvement cycle leads to sustainable value creation. Doing this will let you reap the advantages of working with KPIs while operationalizing the results.
The process of operationalizing, or making KPIs measurable, does require a mental switch. Managers and employees must be open to William Edwards Deming’s philosophy: continuous improvement cycles. The biggest challenge of PDCA (Plan-Do-Check-Act) is going through the cycles faster and with more reliable data than yesterday. But also, to do this better than your competitor.
Link KPIs to the four steps of the PDCA cycle
The PDCA cycle consists of four steps: Plan, Do, Check, Act(ualize). Key performance indicators link these steps together, creating a process of continuous improvement. Deming’s PDCA cycle is still the foundation of achieving success using management information, KPIs, and data analytics. But to do this, a learning system has to be organized and enabled using data. Research has shown that the crucial PDCA steps for achieving better business results are:
- Set benchmarks and targets for KPIs, evaluate and adjust them regularly (plan, act).
- Consistently use data and information for analysis and action (plan, do).
- Use data and information in a goal-oriented way to improve and innovate (do).
- Study the numbers, discuss them, and talk about positive and negative performances (check).
These four steps can be seen as the engine of a fast, agile sports car. Studies have shown that few organizations consistently use the four steps above and apply the PDCA cycle. Of all the research factors, these four steps are a huge part (up to a third) of the overall contribution to achieving better business results.
KPIs themselves, no matter how relevant, don’t ensure success and better performances. Effective results are achieved by using KPIs in the context of a PDCA cycle and in line with the strategy. Research has also taught us that many organizations don’t manage to complete entire improvement cycles. Only 10 percent of organizations is capable of doing this, the rest of them are more or less driving blindly. They don’t get past the stage of making plans and executing. In other words, their cycle is more like Plan-Do, Plan-Do, ad nauseum.
Read more about KPI requirements and Key Performance Indicators:
Give PDCA a new coat of paint
Daan van Beek, author of The Intelligent Organization, is promoting a new form of Deming’s PDCA cycle, which he calls “datacratic working”. “Datacratic” literally means “led by data”. Within this new type of PDCA cycle, passion, data, conscious control, and autonomy take center stage.
- Every plan starts with personal passion. With someone who wants to do something genuinely different. Someone who has a dream, or the personal drive to really improve something.
- Organizations will base their actions on data and irrefutable facts. They monitor the impact of the attitudes and behavior of employees and managers reliably over a long period of time.
- The term “conscious control” can be divided into two parts. Examining and monitoring data creates awareness about what’s happening. Control means that aside from being aware, you can increase the degree of control you have over these events, and implement improvements more accurately.
- The result of going through PDCA cycles is that employees develop more and more autonomy. They no longer have to dance to managers’ tunes, but can decide what works and what doesn’t based on data, and course-correct where necessary.
Two types of PDCA
The PDCA cycle can make the difference between success and failure in all levels and for all disciplines within the organization. If you look at how PDCA can lead to improvement in a process, two types of PDCA can be distinguished (see figure 22):
- PDCA as a regular improvement cycle. This cycle is in lockstep with the regular processes and the classic planning & control cycles. This PDCA cycle is distinguished by: norms and targets, monitoring, using data and steering, changing, and improving using KPIs and other indicators. Corrections are implemented directly in the existing line organization. Using existing resources and methods, the organization can be lifted to a higher level, and you can more easily achieve the targeted performance.
- PDCA as a space for experimentation. This cycle is meant to serve as a safe space to experiment. This can help to practice improvements outside of a “live-fire” environment. Here, employees can test new ideas in a sandbox, without directly affecting the everyday business. This PDCA cycle starts with questions like: what problem should we solve? But also: how could we develop a completely different approach? New resources, competencies, or different working methods are usually required to achieve this. Continuous improvement then enters the domain of innovation.
PDCA as a regular improvement cycle and safe experimentation space.
A word of caution: the decision to design a PDCA cycle on the policy level and over a period of a year doesn’t ensure continuous improvement or innovation. A singular large PDCA cycle is too big and slow for that. But if employees only focus on their daily improvements in a small PDCA cycle, you run the risk of them losing sight of the big picture. Both cycles are necessary, and then the question becomes: how do you link them effectively without getting lost in bureaucracy? The “big” PDCA gives direction and provides frameworks and the “smaller” PDCA enables depth investments and provides stability and continuity. The small PDCA cycles are improvement loops so small that people can relate to them, and big enough that people can compare their own performance to them.
To summarize: the right direction, singular, genuine KPIs, data analytics, and ongoing improvement cycles are essential to improving with data. You want to start a change. The Plan phase ensures that you will stay on course through vision, mission, strategy, and goals, and the associated KPIs. The Do and Check phases take care of the analytical side, so that you know you’re doing things right and doing the right things. The Act phase provides agility, the ability to adjust quickly; not just once a year or per quarter, but every day, or even every minute. For those who still aren’t convinced of the benefits of working with performance indicators, here are six final, strong arguments for working with SMART KPIs. Use them to your advantage!
- KPIs give direct insight into the performance in the core of your business model.
- KPIs will make you consider what the most essential business processes are.
- KPIs refer to the most crucial events.
- KPIs provide ironclad management information and are few in number.
- KPIs ensure that everyone remains aware of the company’s focus.
- KPIs provide a valuable data stream that serves as input for continuous improvement processes.
Learn more about KPIs and improvement cycles
Passionned Group’s KPI and Continuous Improvement experts are eager to tell you what they can mean to your organization. Whether it be training courses and workshops or complete implementation projects, we have what you need. Contact us to inquire about the options.