subject: Revealing the Hidden Value of KPI Models - Wise Thoughts From My Mentor, and a Case Study [print this page] Revealing the Hidden Value of KPI Models - Wise Thoughts From My Mentor, and a Case Study
Yesterday I spoke with a wise old friend about the way organisations learn to change, and we reflected on a major change project we collaborated on in Australia.
We commented on the way that the most valuable results our clients got from our work on Key Performance Indicators was often unplanned, unforeseen in many respects at the end of the workshops we conducted, with an original purpose to solve a business problem. The results had huge value to the client business, gained great acceptance from everyone, and made a major contribution to the survival of the business. The results rarely happened immediately, and appeared almost magically from a different place and at a different time from what we had has planned in our workshop. They worked, but rarely in quite the way we expected.
How and why did this happen? It happened too often to be simple coincidence, and the results were almost always good.
My friend suggested that a KPI modeling workshop reveals what is really important about a situation, sorts out the symptoms from the disease, and focuses the efforts of the people on resolving the real issue. No executive decision seems necessary to drive the process. It just seems to happen.
Let me offer an example.
Fifteen years ago I helped a business with 25 employees to develop a KPI based business model. At the time they had significant problems with high labour turnover and high costs because of excessive overtime and penalty rates. Productivity was low during normal work hours and overtime was necessary to enable the staff to earn enough to live on. Former staff members were setting up in business to compete with my client at low prices, compounding the problem
Using the KPI model and analysing the cost of overtime and penalty rates, we were able to demonstrate that if we removed the incentive for overtime by eliminating penalty rates and lifting normal hourly rates, the cost of labour would remain constant. We checked various scenarios to satisfy ourselves that we had the numbers right.
Raising hourly rates to manage labour cost per unit downwards was a bold call both then and now; what we call "counterintuitive".
Most staff loved the idea and signed up to the new agreement saying"We will get our family time back". We pointed out that it was up to them to lift their production and quality so that they could go home on time. Four staff members tried to cause trouble but they failed because the majority wanted the new rates. It was a win-win deal.
The results were business magic:
Productivity soared. Labour cost per unit was the KPI, and it was measured weekly. The queue of work diminished and customers got the work on time. A new training system improved skill and quality levels. Labour turnover dropped almost to zero, and the last time I checked, over 90% of employees had more that 10 years service. Profitability soared. Market share increased; for some years they were untouchable. The business won a "Business Excellence Award" for its human resources management two years later.
We could not have predicted the solution or managed the process without a KPI model to test many different scenarios. How else could we proceed with confidence?
No-one in the business expected the results to be so dramatically different. The work environment changed, the whole place buzzed and people were smiling as they came to work and even more as they went home to their families in daylight. The Christmas party became a real celebration.
Was this chance? NO.
Without the KPI model the risk would never have been taken. Without the understanding and support of staff, it could not work. Without the tools to show people that they would earn the same wages as long as they got the work done in 40 hours, it could not have gained acceptance.
Could we have predicted how all the pieces would come together to produce such a happy result. NEVER.
We were confident about some of the pieces when we started, just enough to take a calculated risk. What happened was beyond the owners' wildest dreams.
To this day, they track their KPIs weekly and compare the result with the last 15 years of KPI history. They know exactly where they stand. They don't need an accountant to tell them about the health of their business. They know.
You can get the same sort of result for your business. Just chack out the links in the resource box.
