Q&A: Each week I receive a number of questions about specific IT management topics. Here comes one question and answer on the topic of KPIs that can be shared with all of you.
“You say that each IT organization should have only a few great KPIs – but how to get started? We have today 32 KPIs measuring what we can measure rather than the strategic value we create. Is there a good ‘best-practice’ framework to use for this purpose?”
Thank you for sharing your concern with KPIs with the blog post audience and me.
Let is start with the word “performance”. It is a common misinterpretation that performance mean “doing good” and this misinterpretation complicate matters when it comes to strategy and KPIs. Performance is not about running fast or delivering good things – but rather relates to expectations. How fast are you expected to run? Performance is actually linked to the how well a person or organization relates to a strategy or objective (delivering value to business). Performance is a relative measurement relating an expectation of the task carried out. An organization that delivers above customer (service receiver’s) expectations is performing. Just become someone would outrun you in a 100 meter race does not automatically mean they perform, it relates to by how much they where expected to win. Same with IT, IT performance is defined how well IT delivers value to business (defined by the strategy).
KPIs are a proxy for the IT strategy and how IT creates business value. The KPIs determines whether IT performance (fulfill expectations or not) and are therefore vital for any CIO (and business managers) to track and monitor. What I see is that KPIs are used for anything worth measuring in the IT organization – regardless of their connection to the IT Strategy. I frequently ask myself (and clients) – how does this KPI relate to the IT strategy and value creation? One might challenge SLAs and Project Progress as KPIs – but it obviously depends on how is considered strategically important and not. Generally, any IT organization has 5-6 KPIs to monitor the IT organization – not more (too fluffy).
Another recommendation is to define strategic KPIs from a business perspective and language. The purpose is to improve the business understanding of IT performance and increase business engagement. Gartner stated in 2013 that 70% of KPIs should be defined from business perspective. Instead of measuring Application Availability, try to measure business impact of Application downtime in terms production standstill or lost sales. Great way to create business interest in IT.
On the other side, IT organizations are also urged to track the healthiness of the organization by measuring PIs (Performance Indicators). These have little impact on the IT strategy but describe the healthiness of the organization. These measurements might include employee satisfaction & motivation, travelling cost, training cost, sick leave, and other interesting measurements. The best way to use PIs is to set an “interval of healthiness” and as long as the scores are in this interval – the organization is ok (don’t need to discuss in management team).
In a previous blog, I described a “best practice” process for defining great IT KPIs (https://hansgillior.wordpress.com/2015/02/23/great-kpis-in-six-simple-steps/). To summarize, the process consist of six steps as following:
- Understand the IT context – what are the pre-requisites for IT strategy and KPIs. How fast is the ecosystem changing?
- Quality-assure the IT Strategy. Does the IT strategy define how the IT organization is determined to deliver value and why?
- Guiding Principles for KPIs. How are the KPIs going to be used by the IT organization? Common vocabulary, calendar and roles & responsibilities.
- Build the “KPI Bible” with all definitions, source of data, validation and how they relate to the IT Strategy.
- Set targets to display the overall ambition of the IT organization.
- Communication! Establish a communication plan of IT performance – who will receive what information and when.
There are a number of articles and books recommending standardized IT KPIs. My point of view is that every IT organization needs to understand how they, from a business context, create value and support business competitiveness. The way IT delivers value is not generic but unique for each IT organization – and therefore not supported by generic KPIs. Do your own analysis and skip the pre-fabricated KPIs.
The main benefit of reducing number of KPIs from 32 KPIs to 5 KPIs to get a more focused and accepted IT delivery and value creation. But also, as important, it also allows for self-governance and shows a sign of trust to inferior IT units to optimize their value creation to business. The benefit will be higher motivation, value creation and higher customer experience.