How KPIs Will Drive Organizational Performance
Gaining direction with data

The words “data driven” trigger a certain cringe factor. From the transparent e-commerce site that matches your favorite authors with new authors you might like to the businesses that capture your clicks, businesses are continuing to mine the available treasure trove of data to further their strategic aims. Consider the midlevel construction organization—what are they measuring?

Most likely, they measure profitability, safety statistics and collections. Is that enough in today’s world? Do organizations need to up their game and follow their peers across the myriad of industries? Many firms lament the idea of connecting their vision or desired state with how they are currently structured and operating.

For instance, a firm might have a vision or mission such as, “We desire to be the leading specialty contractor in the New England marketplace.” No one can argue that this hits all of the major bullets for a textbook vision. However, visions and missions often die on the vine when they lack the right objectives or key performance indicators (KPIs) to drive them further. Leading, superior or best-in-class are all outstanding superlatives to drive performance, but they lack specificity. Does “leading” define market share, productivity, profitability, customer service and a strong team? All of these may be correct.

In some cases, firms use their core values to supply stronger connective tissue to the goals. However, without objectives or KPIs, firms will often suffer like a team without a scoreboard. Ultimately, how does the team know if they are winning?

Defining the Vision

Visions can be ambiguous. In the end, there has to be some series of metrics to help define success. It is important to not fixate on one metric or KPI. Think of it like a health panel screening. Weight, cholesterol, body mass index (BMI), blood pressure and sugars are all health KPIs that define a healthy lifestyle. You can have great blood pressure and also have a BMI that is out of sync. A firm must look across several parameters to define success.

Connecting the Dots

A firm may have objectives and KPIs, but how do those cascade through business units and to the individual? The key word is alignment. For instance, it would be naive to expect a firm that solely compensates its associates based on project profitability to live out a vision that espouses customer service, integrity and team orientation. While there are plenty of altruistic individuals that can do both, the vast majority of employees will maximize personal gain at the expense of the organization, leading to a misalignment. More importantly, the organization will struggle with credibility and image. There must be connective tissue to link each piece of an organization. The firm is focused on overall efficiency. As a self-performing, labor-intensive contractor, this should be easy to measure. However, the firm is looking at the major heading of “efficiency.” Within the business unit, they are focused on an element of efficiency, perhaps “prefabrication for their Commercial HVAC Business Unit.” Lastly, the individual project manager or superintendent is tasked with measuring, tracking and adhering to the tenets of productivity through all direct labor on his/her project.

Upstream & Downstream

KPIs are multidimensional. For instance, the main problem with measuring safety and profitability is that they are often snapshots in time. For one firm, there were two lost-time incidents and the project spent $30,000 last month. KPIs must measure the upstream and the downstream. The same principles apply in the previous health example. Stepping on the scale every week is the equivalent of looking at the financial statements at the end of the month. It is important to study a firm’s financials, but isn’t it more important to drive the behaviors that influence a project or firm’s performance? Rather than just stepping on the scale, it is equally as important to measure diet or exercise. The same can be said for a firm. Measure the processes that drive the vision. Examples of upstream KPIs include:

  • Employee satisfaction
  • Employee attrition
  • Safety inspections/training
  • Employee training hours
  • Promotions
  • Internal networking events
  • Succession targets
  • Productivity targets
  • Punch list

Examples of downstream KPIs include:

  • Safety Incidents
  • Customer satisfaction rating
  • Repeat business
  • New business
  • Market penetration
  • Relationship matrices
  • External networking events
  • Contract delivery blends
  • Profitability
  • Collections

Modifying Behaviors

A famous management guru that once said, “To manage something, you must measure it.” Striving to become the leading contractor is an empty target without something to make it tangible. One of the great visions from the last 30 to 40 years was Nike’s slogan, “Crush Adidas.”

While there are not too many examples of contractors publicly trolling their competition, this visualization was magnificent. It also worked well in light of the market to which Nike was selling. Consider your team. How do you motivate them to light up the scoreboard and achieve their individual and corporate goals? How often do they see the scoreboard? How often is the data updated? Is the team seeing a stale version of the scorecard or live results? Consider broadcasting the score at corporate meetings, corporate bulletins or on live feeds on televisions throughout an office. There is no single recipe that works for every firm. The only inalienable truths are transparency of data, the frequency of the data received and the relevancy of the data.