Create KPIs to Reflect Strategic Priorities

“What do you think of our scorecard?” asked Phil (not his real name), the CEO of the main roads department of a large Australian state. Phil had emailed me his organization’s scorecard of 29 key performance indicators (KPIs) to review ahead of a workshop I was to run for them. Unfortunately, I could see that, aside from being on the long side, the list was skewed and biased, with large holes that would leave the department vulnerable to underperformance in critical areas.

Structure Is Primary

To answer Phil’s query, I started with this fundamental question: Does the scorecard follow a key stakeholder structure?

Organizations operate in environments defined by their key stakeholders. Consider a Hilton hotel: its key stakeholders are customers, suppliers, employees, the holding company, and the community in which it operates.  The Hilton will only do well if it has strong relationships with all these stakeholders.  If it has poor relations with its employees, it will struggle to deliver satisfactory service and to prosper. If it has poor relations with its customers, it won’t be long before the business goes belly up. In fact, an organization is only as strong as its weakest link within its group of key stakeholders.  That’s why I tell clients that “measuring performance is measuring relationships.”

Applying the Test

So how did Phil’s department’s scorecard do? Not very well. What the executive team had done was to break the organization into six programs. Here are three examples: road safety program, road efficiency program, road maintenance program. No mention of stakeholders. So, who are the key stakeholders of a main roads department?

I happened to know the answer, since I had worked with an executive team in an identical organization in another state on the very same exercise. Here’s the result: road users, local government, affected community, service providers, central agencies, and employees.

Read more: https://hbr.org/2020/02/create-kpis-that-reflect-your-strategic-priorities