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The new thinking on KPIs – and why you are working with the wrong measures

Many companies are working with the wrong measures, many of which are incorrectly termed key performance indicators (KPIs). Companies with 20 or more KPIs have a lack of focus, lack of alignment and under achievement. From my research, very few organisations really monitor their true KPIs. The reason is very few organisations, business leaders, writers, accountants, consultants have explored what a KPI actually is. This article is part of a series that hopefully will shed some light into this important area, and help unearth what a KPI is, and point where to look for them in your organisation.

Let me explain what a KPI is through two KPI stories.

An airline

My favourite KPI story is about Lord King who set about turning British Airways (BA) around in the 1980s by reportedly concentrating on one KPI.

Lord King appointed some consultants to investigate and report on the key measures he should concentrate on to turnaround the ailing airline. They came back and told Lord King that he needed to focus on one critical success factor, the timely arrival and departure of aeroplanes. I imagine Lord King was not impressed, as everybody in the industry knows this fact. However, the consultants then pointed out that this is were the KPIs lay and they proposed that Lord King focus on late planes.

He was notified, wherever he was in the world, if a BA plane was delayed over a certain time, say two hours. The BA airport manager at the relevant airport knew that if a plane was delayed beyond a certain “threshold”, they would receive a personal call from the Chairman. It was not long before BA planes had a reputation for leaving on time.

Late planes also linked to many critical success factors for the airline. It linked to the “delivery in full-and on time” critical success factor namely the “timely arrival and departure of aeroplanes”. The importance the critical success factor “timely arrival and departure of aeroplanes” can be seen by its impact on all the six perspectives of a modified balanced scorecard*.

Late planes:

• increased cost in many ways: including additional airport surcharges, and the cost of accommodating passengers overnight as a result of late planes being “curfewed” due to noise restrictions late at night;
• increased customers’ dissatisfaction, and alienation of those people meeting passengers at their destination (possible future customers);
• contributed more to ozone depletion (environmental impact) as additional fuel was used to circle the airport, when planes missed their landing window;
• had a negative impact on staff, particularly in their development as staff would replicate bad habits that had created late planes;
• adversely affected supplier relationships and servicing schedules resulting in poor service quality;
• increased employee dissatisfaction as they had to deal both with frustrated customers and the extra stress each late plane created.