Good institutions are in a state of constant change. They adapt to changing conditions in order to survive.
Sometimes, when faced with a crisis, they adopt a deliberate, planned change in strategy. This is a revolutionary change, commissioned by the board and senior management, often with external professional guidance. These are expensive programs, which affects the lives of many and the organization needs to know if they are working as planned.
Most of the time the changes are simple response to some external stimulus, with the success or failure dictating whether the change will be repeated. Let us look at this as a trend change. It still happens, it can not be stopped, and the results often look like a random walk with unexpected consequences creating frustration for the top tea m.
Best practice says that the management team should use key performance indicators (KPIs), as well as financial statements to monitor performance.
When I wear my hat company director, I remember the hard data that I got on the board first and foremost the Bank’s results with historical perspective and compared with the budget. Managers rely on the report of the board to provide a leading indicator data as forecasts and soft performance trends. These reports were rarely based KPI.
If we are dealing with development change and leading indicators are cast in KPI model, results change should be easy to track time, and subtle changes in over time can be found and correlated with changes in performance. Drivers of small changes in performance are identified and can be reinforced or eliminated by management actions. This gradual change process is inevitable, so it is important to capture the small steps in the right direction.
When we deal revolutionary strategic change metamorphosis. I recommend some changes in policy should be adopted without a thorough examination of how they will work and what can be expected. Best practices used a scenario development techniques and probably the best, and the worst cases are examined by computer simulation. Normal KPI modeling process quickly show the main points of leverage, and establish KPIs for the new policy.
If structural is predicted that KPI modeling process shows new relationship between functional units, and new KPIs and performance targets can be set. In this way it may be possible to reduce the effects of unintended consequences.
Examples of case my book.
argument I’ve presented looks good, but need examples to provide more clear guidance. Here is one, with a description of how specific KPIs that came from the direction was obtained
Commercialisation of large government organization – .. Grand attempt
20+ years Australian government embarked on a program of change to capture the benefits of a commercial approach to the provision of state services. All services operations scattered throughout the entire government, which exists to provide services to the government gathered in one new Department, DAS. Most services were commercially contestable, and the aim was to uncover this gradually to higher levels of private sector competition and capture the expected restructuring. There were 28 units in the new DAS. The first step was to introduce accrual accounting in the new organization. This was a major project, the government used traditional cash accounting and program budgeting, with all their weaknesses, at that time. One of the most difficult part of the process was identifying and evaluating all assets. Training all 18,000 employees in the principles and implementation of accrual accounting took quite some time. The idea of making a profit was simply not part of the culture, so it took even longer.
In 2005, I had a private discussion with just retired Director of DAS, Noel Tanzer, and I was fascinated to learn about the process. Noel was highly regarded as one of the senior mandarins in the Commonwealth public service. He told me that in 2-3 years, the Board was pleased with the results from the introduction of accrual accounting. Settlement improved reliability and accuracy (apparently soft KPIs for these major policy changes).
He described it in these terms “We could hear the soldiers all go to the same drum beat, but we were nervous. It took us some time to realize that they were all marching in different directions. That was when we decided that the next stage of the work was to present a major program of training in the business. That’s when you got involved. “
Each 28 units had other business and a different range of commercial and public good services. Retail mandatory KPI models, and the process of working with staff to develop profits and pricing models was a key factor in the marketing training that happened. Each of the 28 was doing its own structural changes in response to exposure to competition imposed by the government. The goal posts changed every year.
What KPIs did we use to measure progress?
The most important KPIs were hard productivity and price related
return on funds employed
Revenue and gross profit per employee was high-level measures price of DL hour
· Direct labor utilization
· Sales and marketing expenses% of revenues
· Achievement of sales plan
· Cost ratios
· Asset and capital management ratios.
We used the model to set feasible but challenging goal range for KPIs and measured development. The goal was different for every company, because the company was so different, but the rules were the same
Soft KPIs were also extremely important :.
· Market% for the main segments
· quality and timeliness of project delivery
· Satisfaction was evaluated% of trade held against competition from the private sector.
I define these as soft KPIs, because they are dependent on external measures.
Did it work?
Over five years the total number of employees was reduced from 18,000 to 8,000, but the total remained stable. Staff productivity was significantly improved. The qualified staff that were lost were usually snapped up by the private sector.
There were some mistakes of course, but they were far outweighed by the results. The success of this type of grand experiment with people’s lives is not recommended KPIs but in social and political out-comes the lessons learned from this guided change process have served Australia well in recent years.
Some of you may ask,
The answer is that most of the 28 units were low, “Why is this important to me My company is not employing 18,000 people ?.”; each individual business unit simply had to learn something completely new to the public sector – how to compete with the private sector for it had always been in his job. It requires a complete change in the public service mentality, and everyone had to learn the real meaning of the word profit . 8000 of them managed well enough to keep their customers and make a profit. This was a new goal for the people who joined to serve the public without thought of profit. It failed.
If you’re a revolutionary change, KPIs you should be the new KPI model. If the change is in development, there are fewer changes in KPIs need, but you’ll get to keep KPI model line with the structure will lead the way.