Derek's Blog on everything and everything else...

By Derek Hendrikz

If you do a google search on whether KPI-based systems work or not, the amount of ‘against’ arguments definitely outweigh the ‘for’ arguments. More alarming is that most arguments in favour of KPI-based systems are made by companies who sell these systems.

Over the past 20 years I have touched base with more than 170 companies, and could not really find users of KPI-based PMS’s (performance management systems) who actually has confidence in its application. In fact, in most cases it’s seen as a necessary evil. Mostly it is strategic leaders who, after a strategy formulation session, demands that strategy must be translated to action. Of course, nobody in the company knows how to do this, and then balanced scorecard or other systems are implemented to link strategy to human performance. In the process a huge consulting and training industry is stimulated and, in my mind, this produces very little results.

Now, the problem does not lie with having Key Performance Indicators (KPI’s). The term basically says that there are indicators of performance that is key and that we should focus on such. Nothing wrong with that! Thus we start looking for the problem with how we define KPI’s or what their characteristics should be. Still, after all the research and money spent, it ends up being something that everyone within the organisation hates…

Due to my intensive involvement with strategy development; I have been compelled to grapple with this problem for many years now. And it finally seems that I have gained some comprehension to this conundrum. You see the problem never is, nor ever was with the concept, but rather with the belief construct or philosophy that drives the concept. There is absolutely nothing wrong with having performance indicators. The problem is your perception of how to locate those indicators.

All performance management systems that I have ever viewed has a basic process. This process entails creating a strategy, defining a structure, creating job profiles for such structure, developing KPA’s (key performance areas) that link strategic objectives with job profiles, and then creating key performance indicators that assigns specific performance to each job profile.

Although the above methodology seems sound; it has a critical error or rather a fundamental flaw, which is that we attempt to manage the performance of people without understanding the process within which such person must perform. Reality is that no person can perform outside a process. Therefor all we need to do is manage the performance of a process and assign people to tasks within such process. Where an employee is linked to the inputs, outputs and behaviour of a process his or her performance is already defined.

Why on earth would you want a job description if you have a well-defined process, or KPI’s where processes have clearly defined inputs, outputs and behaviour? In fact, even a structure is no more than the mapping out of process relationships; a budget no more than an understanding of the shared fixed cost between processes and the variable cost within a process; a managerial position no more than authority over parent and child processes and asset management no more than understanding which non-human resources are consumed within a process. In effect an organisation is no more than the defining of process relationships and targets are no more than the quantification of process results.

Are most companies barking up the wrong tree? Yes they are! Is this costing a lot of money? Absolutely!

It is time to realise that managerial models have not evolved at the same pace as with most other disciplines. In reality, we are so far behind that it’s too late for evolution. We now need a revolution. In this light I advocate that we should forget about restructuring, reengineering, KPI’s, KPA’s, Job grading systems, structural development and all the other nonsense that goes with this. It’s a trap! We have created experts in HR, Supply Chain, Strategy, Finance, Governance and many other areas that specialise in the solving of problem complexity; but at the cost of failing to understand context complexity.

In conclusion, all the answers you need for absolutely anything within you organisation is captured within the processes that construct your organisation. The intelligence is there - it creates the genetic structure of your organisation. All you have to do is define it, quantify it and measure it. Everything else is simply a result of calculating and presenting the variables defined within process families… In my Strategic Leadership Master Class we thoroughly work with the art and science of understanding, defining, quantifying and practically applying organisational processes…

© 01 June 2015