It’s all very well having strategic aims at the top of the business, but how do you filter these down throughout the company in a meaningful way?
Fifteen years ago, I ran a project for the senior research and development team at a large industrial organisation. The team was struggling to connect their day-to-day work to the strategic priorities of the business. Trying to use the standard key performance indicators (KPIs) found in professional and academic literature, such as R&D intensity, fraction of sales from new products or number of “leading” products, just wasn’t working. In a heated discussion, I said to the head of R&D: “Don’t measure generic stuff, measure what you actually want to achieve.” Obvious, right? But later he came back to me and said: “That was the deepest and most useful thing anyone has said to me in a long time.”
Whoa. How can such a trivial statement be the most useful thing anyone had said to this executive VP?
Well, maybe it’s because measuring what you want to achieve is not all that easy: what looks like a clear goal at the top gets diluted through the organisational layers as a result of interpretation, professional standards, conflicting interests and constraints – and simple misunderstanding.
Here’s another example, this time just three months old. At CJBS, we have been working with a European CEO and his 10 direct reports who want input on how to make their strategy more distinctive – and then on how to align the organisation to the strategy. The team has already done some work on this: each head of function (IT, operations, sales of each segment, etc) produced a strategy statement outlining what his or her function contributed. Each of these functional strategies boiled down to: “In order to uphold the highest professional standards of excellence, we need to prioritise A, B, C etc.” But “professional excellence” and a list of priorities do not add up to a distinctive overall strategy.
Many organisations talk about KPIs as a powerful tool that can be used to align an organisation behind common overarching goals. Indeed, at CJBS we do this too. But KPIs have a terrible tendency of becoming a bureaucratic and inflexible straightjacket, and there are two main reasons for this.
First, the goals of the CEO are not directly related to, or even articulated in the same language as, the work of front line employees. Things like “market share” and “technology leadership” are hard to find directly in the projects of a call centre worker. Nor do strategic goals imply any detailed operational actions; any given strategy can be achieved by many different combinations of actions throughout the organisation. Operational actions must be produced by problem solving that is guided and constrained from the top, but the energy and creativity needs to come from all levels. Often, this energy gets lost in translation as the managers hand down “strict goals”, in the form of KPIs, to their employees.
Second, any KPI that is broken down to an operational level can necessarily focus on one working group only, neglecting interrelationships. The classic example is a spare parts service being measured on response time (wanting to have large inventories so any part can be sent right away), but the spare parts warehouses being measured on costs (wanting to have small inventories to save working capital). KPIs encourage a narrow view: once everyone has a black-on-white goal, they tend to pursue it and make concessions to interdependencies only reluctantly and when explicitly forced to do so.
In this light, my seemingly trivial suggestion “measure what you actually want to achieve” has turned into a monster coordination problem.
We face this at CJBS: we have developed KPIs and we are now iterating them in order to make them work. We encounter both problems described above. We are dealing with trade offs that require discussion rather than narrow KPIs (for example, how to involve more faculty in executive education without, at least initially, reducing feedback quality). I now have lunches with the staff departments in order to talk about our strategy and what it means for them personally, and I have meetings with faculty in every subject-specific group to do the same thing.
The second challenge is the focus on narrow success: with a “publications” KPI, faculty are made to focus on their subject-specific excellence, not the school’s, and with student number and revenue KPIs, programme marketing staff want to maximise the number of students applying to their programme, rather than help others or strengthen the position of CJBS as a whole.
After the episode with the CEO and his direct reports, my co-teaching colleague and I looked at each other, and agreed that this is one of the key management challenges: not only having a strategy at the top, but getting enough members of the organisation to understand it, identify with it and then bring it to life by collectively producing ideas that push it further than the senior team could have imagined. This requires investment and time, and the guts to let people deviate a bit from what you say. And you don’t get there by simply “aligning” employees with KPIs.