Having been on the supplier and the client side in the past, I know that Key Performance Indicators (KPI’s) themselves don’t result in performance. While some people like the carrot and stick approach, you need a management approach that uses measurements (and other techniques, not just KPI’s) to get performance. Don’t just rely on a passive performance measurement system. In fact, sometimes KPI’s can even drive the wrong behavior if you aren’t careful.You also can’t just use historical numbers, such as typical dashboard reporting, to get results. You don’t need historical data, you need information with trending and analysis included that is more forward looking. After all, you should catch issues before they cause failure, not record failure after it happens.
Of course, if you don’t have information, you aren’t managing and can’t make decisions that improve results. So measurements such as KPI’s are required, it’s just that they need to be used differently to manage performance, not just look back and penalize or reward based on hitting a measured target. Having KPI’s and Service Level Definitions with teeth in your contracts may seem like the right thing, and you can certainly point to it as your due-diligence when it comes to supplier performance, but there’s evidence that the penalty/reward system doesn’t work very well.
Just looking at a KPI that isn’t meeting expectations doesn’t tell you what you need to do to improve results. For that you must understand what is happening in the complete process that leads up to the KPI result (which is typically an outcome from a process). You also need to work with your suppliers or staff to identify and fix the issues so that failure doesn’t happen.
For that, you should also track parts of the process that impact results to give you more info. Where is the bottleneck? Is there a year over year explanation (i.e. seasonal), is it an anomaly or a trend? What needs to be fixed? How does one building, region, supplier or staff compare to another? What is the high performer doing that the others aren’t?
Then, you need to bundle it with good management techniques and communications to manage results. A simplistic ‘gotcha’ system of KPI’s and Service Level Definitions won’t enable you to work together with your supplier and staff to identify issues and correct them before they become a problem. Communicate with them about what works and what doesn’t, where the weakness is and where the strength is. Do it formally and regularly in a constructive way, being adaptable and understanding – after all, nobody is perfect. If you dwell on the small issues, the big issues won’t get any attention.