KSA KPI KSI

KSA KPI KSI

Written By : Bakhtiar Hakeem
TABLE OF CONTENTS
 

1.                INTRODUCTION
2.        BUSINESS: SUCCESS vs. PERFORMANCE
2.1.        Nature of Business
3.        COMPREHENSIVE PICTURE
3.1         Objectives–Success–PI
4.        GOALS AND OBJECTIVES
4.1.                   Vision
4.2.                   Mission
4.3.                   Strategic Objectives
4.4.                   Operational Objectives
4.5.                   Setting Objectives
5.        BUSINESS PERFORMANCE MANAGEMENT
6.        PI and KPI
6.1.       The Types of KPI
6.1.1.      ADRI
6.2.        KPI: The Challenges
6.3.        Tools for Analyzing KPI
7.     ANALYSIS, CONCLUSIONS AND SOME RECOMMENDATIONS
            7.1.       The Mission
            7.2.       Two Sets of KPI
            7.3.       Setting Objectives
7.4.                    7.4.       KPI: The Solution
7.5.                    7.5.      Specific vs. Vague
7.6.                    7.6.      ADRI and Non-Financial Objectives
7.7.       8.0.      Summarizing the Reasons of Failure

 
 
                       

 

KSA: key success areas
KPI:key performance indicators
KSI: key success indicators

 

 

 

 

 

    

 
INTRODUCTION   
    
1.0.             Business is a serious business. It needs a competitor’s heart, an incisive and courageous decision-making and penny wise grit. However, the realization of real term success or failure is often late; more so of failure. Then one hears and reads such like dialogues and sentences:
“O’ that decision proved real good”.
“I played a trick and it worked”.
“O’ God we were lucky to have filed just in time”.
“Sir I tell you, I have a sixth sense, this method would work”.
“The fluke worked!”
“He was too clever a partner to do the business with”.
“O’ Gosh, how LC could be en-cashed without receiving the coal”.
“Every one is selling mineral water these days, why can’t we…..”
“We have done every bit possible in last six months, our brand is still not picking up”.
“You will prove such a nincompoop in just six months: look at the CV you gave us……”
“He is such a green hands, without him our farm would have been a barren acreage”.
 1.1.      KSA, KPI and KSI, all appear and sound alike. These terminologies are a shade different from each other. John Reh, however, one of the scholars on the subject considers them all the same[1]. I will touch upon the differences at appropriate place. However, ‘KPI’ is considered to be most suitable for the aim and purpose of this Paper. Before proceeding further here is a definition of KPI or KSI. “…quantifiable measurements, agreed to beforehand, that reflect the critical success factor (of the company, department, project)”.[2] Another definition of performance indicator (PI) from another source, “A figure or measurement that acts as a guide to how well an organisation is performing, as a whole or in some aspects of its activities, and what its strengths and weaknesses are…”[3]
1.2.                The business at AWT is very vast. It is spread over at least five sectors. There are more than ten different business units (BU) being run by the BOD of AWT. There are five BU in service sector alone. Therefore, the aim will need a special handling. This Study will focus on determining and setting KPI for the business at AWT. Special effort will be made in keeping the treatment of KPI generalized enough and objective enough to be of use to all the CEO, team of professionals and the decision-making bodies at various tiers. The Study is developed upon the following sub-topics:
1.2.1.           Business: Success vs. Performance
1.2.2.           Comprehensive Picture: Objectives – Success – PI
1.2.3.           Goals and Objectives
1.2.4.                 Business Performance Management (BPM)
1.2.5.           PI and KPI
1.2.6.           Analysis , Conclusions and Recommendations
BUSINESS:
SUCCESS vs. PERFORMANCE
 
2.0.     A lot is attributed to good luck and bad luck and sometimes the intuitive wisdom becomes the backbone of the business. These are fundamentally dangerous approaches to achieve and measure success. Businesses which have to live beyond the life span of owners cannot be placed on the uncertain grounds of luck. While defining success is relatively easier, the sure, the known and shared way to success should be through performance and performance is measured through PI. In any case what is being lucky? Let me give it some concrete words. It is when preparation meets the opportunity. Deliberating on success further; many may think it is ‘profit alone’. It is not right. If profit alone becomes the focus of business; it will cause the demise of the business concerned sooner than later. Business is either a product or a service. And either or both of these meant for the customer. To simplify the equation, customer is the business. Here is a diagrammatic explanation:

You
AWT
Product
Service
Customer
Profit
 

When you win customer you succeed in the real business. And of course winning him or her is through the product or service. And of course it implies beating your competitors. A business entrepreneur, who forgets his boss, loses the business. A few lines about the nature of business at AWT.
2.1.                Nature of Business.   All large size companies and world renowned MNCs were laid by one or a small group of two or three entrepreneurs. Internationally we know of Toyota, Suzuki, Ford, Microsoft, Apple, Rolls Royce, P&G, Bata etc. And following names are well known within the Country Vlika, Mansha, Packages, Hamdard, Lever Bros, Fecto, Itefaq, PECO, Nazir & Co, Packages, Malik Riaz, Arif Habib, KASB, K&N etc. No armies were behind these business tycoons and empires. It would be interesting to know in K&N, K is for the initials of the name of husband and N is the initials for that of wife. For a more detailed review and insight on work culture and core values at AWT, I refer to my Paper; AWT Core Values dated 7th May 2008.
2.1.1.           Referring to above diagram; customer is the business; business is described in a series of harmonious and in tandem goals. ‘Profit’ shall always be an integral implication and not the primacy. There are many a tiers of the goals and objectives; details a little later.
COMPREHENSIVE PICTURE
3.0               Objectives–Success–PI.   Objective or goal is the destination. Success is the degree of achievement of that goal. And PI is the real, measurable, and known to all in advance, pulse point where counting is done against a timescale on the road to attainment of the objective. This idea can be illustrated as under:-
 
 

Objectives
Success
Performance Indicators
Selling 2,000 tons of xyz or to 3,200 customers, or generating 10,000 KG by 31 Dec 08
(-)
Production
Marketing
Finance, HR, Maintenance & Support
 

 
 
 
 
 
 
 
 
 
 
 
 
 

This was the whole picture. This illustration shows the grand relationship. It will now be easier to elaborate on PI and highlight their mechanics, role and significance. It will help me identify and highlight KPI and how a prudent business management should make use of these. Logical expansion will allow identifying KSI, explaining their role and significance.   
            GOALS AND OBJECTIVES
 
4.0.      Supreme is the socio-economic level. Many call it ‘vision’. Next level of objectives is the ‘mission’, and next, down the ladder comes strategic objectives.
4.1.       Vision:    “To be one of the leading business houses employing best business practices.” [4] This is the socio-economic objective of AWT. This is the final destination where we wish and endeavor to be. The measure of its achievement would be very specific in certain areas and open-ended in some. Can we fix and lay down PI? The answer may be no. Can we set any KPI? Again the answer may be no. Can we have KSI? The answer may be yes. Here lies the difference between KSI and PI. There is no time limit; therefore, the progression towards the goal could be on an unending chronological scale. A pointer towards the KSI; who are the leading business houses. It would keep changing with the time, and AWT will have to see that it is part of the leading ones all the time. What are the best practices in corporate business; these would again remain in some kind of evolution. Executives at AWT will have to have a measure of these practices, and then there must be a gap assessment mechanism and finally a culture of change, which in turn imply training and developing HR for change. All these shall need an explicit system of KSI. It is very important, lest the fall or deviation comes as a ruthless surprise. Do we have these?
4.2.       Mission: “To undertake safe and profitable commercial activities in a manner that portrays AWT’s image as a respected market leader, while generating maximum funds for meeting the welfare requirements of the Army”[5] This is the second top most objective. It must have its KSI, those all known, all owned, measurable barometers, which must tell all concerned whether we are successful or how much have we been successful.  The KSI will thus allow the next sub-system i.e., corrective intervention, to work. It is extremely important to set right objectives for all in chain to role out and yield positively. We will have a look at the characteristics of objectives later.
4.3.       Strategic Objectives: These are more specific than mission but less than operational objectives. These are more significant, heavier on budget and resources, longer and deeper in time space and costlier in mistakes than the operational objectives. These are significant both, by what if achieved and, by the cost, if not achieved. Here are some specimen strategic objectives. These are of Askari Pharmaceuticals; Annex A refers.
a.             ‘For 2 to 3 years span:
·                     To reach or exceed Rs. 1.0 billion sales.
·                     To reach or exceed break even mark in formulation.
·                     To lay foundation of a strong corporate brand.’
b.      Here is another example of strategic objectives. These are of RE; Annex B refers. Note there is no time limit.
·                     ‘The development of sustainable Real Estate Business by purchasing pieces of land with a view to develop these into sizable Housing Schemes, with an ultimate objective of selling these plots in the open market to generate funds.
·                     To purchase, construct and manage commercial projects i.e. acquisition of Bank premises, repair and renovation of existing Bank, Construction of CNG Stations and Construction of Army Projects.’
4.4.      Operational Objectives.   Down the line would be operational objectives. KPI for these would be very close to the objectives itself. A stage would come when business goal could reduce to mere correct counting of coins or packing the bread in right shopper or even an apologetic smile to the customer saying sorry we are out of stock. Then where is ‘profit’. Profit is the bye-product of the business.  Figure 2.0 refers.
4.5.       Setting Objectives.    A few principles must be reiterated. Even if known to many, these are forgotten and ignored easily. Sometimes these are, painfully, shelved because of superior loyalty to self interests than that of business. Before getting into characteristics of objectives, the two principles for improvement in performance follows. One that people would perform better when they know what others expect them to do. Second, people would perform better when they know how their performance would be measured or adjudged. Yet another thumb rule, ‘people do what you pay them to do, not what you ask them to do’, said Hicks Waldron, former Chairman and CEO of Avon Products, Inc[6].  Now we look into the characteristics of objectives.
a.      Definite vs. Vague. The objectives must be quantified. For example ‘maximize the sales or the profit’ is a vague objective. So it would be to tell the staff at a work place ‘to do their best’. Every one’s best is different. Compare the objectives given at paragraph 4.3 ante. Similarly growth, expansion, increase or enhancement is all vague, unless quantified by the accounting units or by the percentage and stipulated by the timelines.
b.      Owned and Accepted.    Many a goals are set with the implicit understanding that all who have to accomplish, know it. This is the beginning of the trouble. Some goals are written and promulgated in a way that they become ‘to whom it may concern’. No one exactly knows who was to do what. If attained some or many may step forward to take the credit, however, when things fall short and in the gaps, no one is and can be held responsible. PI and KPI would be of greatest help to over come such a problem. Where goals would be vague, proper mechanism and structure of PI and KPI compensate. Hence, one conclusion that goals must task specifically. It could be individuals, appointments, sections, departments or divisions. Next and even more important; that goals must be owned by the one tasked to. Those made responsible must accept the responsibility to accomplish. This is an area of potential troubles and multitudes of troubles. Goals are either not accepted, or partially owned and sometimes undermined out rightly. MBO is a thirty years old concept, still very far.
c.      Difficult vs. Challenging Goals.     Very briefly; setting demanding goals is always the first choice. Difficult and stretching goals are set both, by those setting it for others and by the CEOs for themselves. Two other subcategories are minimum and normal goals. Another parameter of concern is the perception by the people being tasked; if they believe that the goal is not attainable. The answer lies in making the goals attainable. The soul of MBO, as a matter of fact rests in setting mutually agreed to (attainable) goals. 
d.      Timely Feedback. This characteristic has deep and direct relationship with PI and the KPI. The foundations of PI rest on accurate, timely and relevant observation, measurements and feedback. This is an area of intimate overlap between the objectives and the way performance is measured.
BUSINESS PERFORMANCE MANAGEMENT
(BPM)
 
5.0        These are similar terminologies, synonymous in meanings; like corporate performance management (CPM) and enterprise performance management and even operational performance management. CPM would suite the aim and purpose of this Study. These are a set of process that helps organization optimize their business performance. CPM provides a set of framework for organizing, atomizing and analyzing business methodologies, metrics, processes and systems that would drive, monitor and provide for positive intervention. I would refer to HPT (Human Performance Technologies) here. HPT can help bring about a change pro-actively; while system and sub-systems of CPM, KPI and PI would provide for one half. Any further discussion on HPT would be out of scope of this Paper.
5.1     CPM is considered as latest generation of business intelligence (BI). I will conclude this part of discussion by stating that BU at AWT, represented in the annexes, have a fairly elaborate system of PI in the form of daily, weekly and monthly reports and return, less that of non-industrial BU. Most of the PIs are ‘profit’ focused. However, yet objectives are not met, variance is either lost or ignored and in fact fail to tell CEO concerned that the business is slipping away. CPM is one answer.
5.2.      An organization should go through a serious and elaborate exercise of need assessment before selecting a specific methodology to implement CPM. Just the names of various methodologies here; six sigma, balanced scoreboard, activity based costing, TQM etc.
PI and KPI
 
6.0.       Routine reports and returns should contain the PI. However, some times reports and return or some parts of it do not fulfill the purpose of tell-tale of performance. However, the real problems lie in reports and return being devoid of relevance to the KPI and KPI in turn, oblivious of business objectives. PI should be those selected pulse points which give clear cut reading of the activities and processes, and which will ultimately help achieve the goals or otherwise. PI and KPI are same by their chemistry and characteristics. KPI are those PI which would directly, or as a sum total of some PIs significantly contribute towards the laid down goals. In the paragraphs to follow the focus is on KPI and has been explored in detail. Before I go over to various facets of KPI let us see in a much summarized form as to why use KPI.[7]
              
            I will not elaborate on it further.
6.1        The Types of KPI. Two customary sub-categories are financial and non-financial KPI. Two strategic objectives quoted at Annex C are purely financial objectives. The whole gamut of PI is therefore, financial. Out of the three strategic objectives of Sugar Factory, Annex D; two are financial and one pertains to production. Second category is non-financial KPI. Following are some possible examples: -
            a.      Arrange a meeting of business promoters, property dealers and investors at Adiala Lands  every six months. (For RE)
            b.      Opening of a primary school for 400 children at the workers colony of ACL Wah, in FY       2008-09.   (For ACL Wah)
            c.      Speed up weighing of sugar-cane, completing it (within 12 hrs) and expedite the payment (within 15 days) to the cane growers; in next crushing season. (For Sugar Mills).
 6.1.1.               ADRI. The two categories discussed above were too simple to serve the multitude of purposes KPI can serve. We at AWT should set all the following types of KPIs:-
            a.      Approach KPI. These should cover PI related to training and development strategies,       recruitment policies, and ways and means to promote core values.
            b.      Development KPI. These PIs will cover, expansion, development of products, product line, deployment of workforce, any civil works, capacity enhancement and storage capacities. It will also cover QWL aspects, which are in essence nothing but workforce involvement or participation.
            c.      Results KPIs.  At AWT almost all PI by design or otherwise fall under this category. These           PIs relate to profits, revenue on sales targets and finished goods stocks.
d.      Improvement KPI. This is the fourth and last sub-category, where PI and KPI can yield in           otherwise important and frequent business worries. These are policy up-dates; follow up actions, progress on recommendations.
                        Here is a diagrammatic summary[8]: -
6.2.       KPI: The Challenges. Let us examine the assorted collection of strategic objectives and some of the PIs at the seven annexes at the end of this Paper. Every analytical eye will find some deficiencies, vague areas and overkill in some. Ask the handling staff and CEOs at BUs they will complain we have to record so much to serve the HO. Yet yearly losses are mounting in some BU and there appears to be little solution. The task of setting the KPI is neither easy nor it can be left once updated. If one is alive to the dynamism of business, PI and KPI must change correspondingly. Down below are the difficulties or the frequently faced questions along with their possible solutions on setting and handling KPI.
Difficulties
What to do?
a.
How many KPI for an objective?
Could be one; but usually many. Aim is not to leave out any of the facets of objective for which PI or KPI is being written.
b.
How often to measure?
As often as required for monitoring, for developing a trend or for identifying a formal problem and keeping a time margin to intervene.
c.
Which KPI format is appropriate?
The one which meets the objective. Look at the diagram of ADRI once more. The format should be reviewed and updated if necessary frequently. Nature of values, accounting unit and frequency, all can be and should be updated.
d.
Are KPIs directly controllable and manageable?
An important area, which should be addressed by the senior managers and those who are at various levels of decisions. How these should be made manageable? Identifying uncontrollable factors and then finding the remedy.
e.
How to ensure KPI reflect strategic drivers?
One, by choosing KPI out of the PIs carefully; second, by relating these with KSA. Third, by measuring KPI against the tools covered in paragraph 6.3, below. Fourth, by keeping the KPI current i.e. these must be responsive to changing technologies, dictates of TQM, customer needs and competitors edge.
f.
Do you need KPI at all levels of organization?
Yes, surely at more than one level but not all. The objective of setting KPI will decide where to keep and at which level it is not a must. Generally a KPI would be needed to over view a set of five to fifteen PI.
 
g.
How should KPI be usually displayed?
Relate it to the two principles mentioned at paragraph 4.5 ante.
h.
Do you have data and infrastructure to support KPIs?
Organization must be well balanced to support concurrent activities. Means to measure, collect, collate and report data go hand-in-hand to do business in modern days. EIS is one such tool. AWT is making use of it.
 
6.3        Tools for Analyzing KPI.   Towards the end, here are some guidelines or some PIs to adjudge the quality of PI or KPI. These are the testing points of the tool to measure the rest. These seven points can be named as the characteristics of a good KPI.  These are self explanatory and need little explanation. However, in the process of collection of data for this Study I experienced a number of confused responses, unclear concepts, and mixed approaches. See paragraph 2.0 of Annex B and E. Not that all were basically wrong, but differed a lot from each other. Following diagram presents a list of tools to critically examine the KPI.
           
            These tools should help management (CEOs and the senior managers) to develop elaborate and purposeful system of KPI. KPIs based on well defined and current objectives; paragraph 5.0 above refers. These tools, will equally help reviewing the existing KPI, and keeping the KPI correlated with the objectives. 
 
ANALYSIS, CONCLUSIONS AND SOME RECOMMENDATIONS
7.0.       This is the last part of this Study. I will try to analyze, evaluate and draw inferences from            the information given in the Annexes, placed at the end or known otherwise. The analysis and the suggestions will be in the light of what all has been presented in last eleven pages.
7.1        The Mission.   To be ‘safe’ and ‘generating maximum’ funds make the objective weak; paragraph 4.2 refers. Such a mission would lay down the elimination of primacy of customer and setting up an approach to look inwards. This mission is defendable to some extent, if kept as specific for Corporate Head Office (HO) and each BU determines its own mission. The KSI, to serve this mission would tend to be self-contradicting or confusing when it comes to decision-making, resource allocation, to intervene and take corrective measures.
7.2        Two Sets of KPI.   We should develop and maintain KSI and a set of KPI at HO for the corporate body separately from those of BU. HO does not deal with the customers like BU have to do, to run their business.
7.3        Setting Objectives.   Job description and performance appraisal are the cutting edges of the soul of setting objectives. So we have to set first JDs then create bench-marks, followed by performance appraisal formats and then actually be doing the appraisal. The ideal in HRM would then be with in reach that is to ‘pay for performance’. We have to do all this, mentioned in last two sentences.  
7.4.       KPI: The Solution.   Do KPI provide solution to all the problems?
7.4.1.    A few years ago Askari Pharmaceuticals air transported PAP to Lahore from China. PAP was always and is shipped to Karachi and then brought by road cargo to the Factory at Phool Nagar. There must have been some emergency or extreme business need. However, the consignment kept lying at Lahore Airport for next 115 days! What went wrong? It was wrong decision-making. Decision-making can be learnt and taught at any stage and for any nature of work.
7.4.2.   Study of strategic objectives and Formulation Dash Board and Basic Dash Board indicate, these are very specific and that processes are being recorded extensively and timely. Yet the BU has failed to succeed, year after year. Do KPIs alone provide the complete solution? The answer is probably no.
7.4.3.    An Analysis
a.             KPI (Annex A) cover only specific areas. These are not all encompassing. There are no non-financial objectives at Annex C.
b.             There appears to be no structure (KPI) linking all business objectives and the PI. BU appears to be serving and focusing on the ‘profit’ targets or Result KPI only.
c.             There appears to be no objectives, to measure the expansion of business. Therefore, no KPI counting the number of customers lost, customers gained. No PI to measure shelf space lost, shelf space gained.
d.             Do we have a system of measuring market needs? This Dash Board appears to be blank. And what is market? Customer is the market. Competitors winning away your customer are the market.
e.             Focusing all efforts on financial objectives set by the HO. Are these objectives fully owned? Is customer the real boss?
7.5.       Specific vs Vague.  Study of objectives of RE (Annex B) indicates what is being vague in setting objectives. There are no means to measure; there is no yard stick and no time lines. Study of objective of AGL (Annex E, paragraph 1.1) reinforces the same inference.
7.5.1.   An Analysis
a.             Customer is not the focus. Therefore, no cognizance of customer needs, while it is a service.
b.             Writing of objectives is probably in response to the demand of HO.
c.             Generation of funds is the only objective, that too without any figure or time destination. Should profit be the focus; Para 2.0 refers.
d.             Terminologies like large, efficient, sustainable, sizeable, excellent, and more actually mean nothing in business pursuits. No two persons will agree to what is ‘more’. If you as CEO or a Manager want your team to perform well, follow the two rules given at paragraph 4.5.
7.6.       ADRI and Non-Financial Objectives. Looking at the strategic objectives of Cement Factory (Annex C); and Sugar Factory (Annex D); one finds there is nothing on the customer; the product and the service; whichentrepreneur must generate, provide and offer. What all I must get out as bye-product is my objective. Going by ADRI, paragraph 6.1.1 refers; KPI and PI; on following subjects should also be included: -
 7.6.1.   Approach KPI
a.             TNA. Training need assessment or the gap analysis on human resources (HR) to work on machines, handle troubles, cut costs, and change in attitudes.
b.             HRM. Becoming ‘corporate’ i.e. letting HR share the business goals, responsibilities, productivity and gains. Performance appraisal and linking pay with performance, rather than paying for time, measured on clock and on calendar.
7.6.2.   Development KPIs
a.                                     Employees Empowerment and Enrichment
b.             QWL
c.             Competition with Competitors.   Dewan Sugar Mill is leading in this particular aspect. Could there be some KPI to be the market leader? Market leader could mean first to respond to change (in customer needs or in any other area); first in the quality and least in price.
7.6.3.    Result KPI. Yes, all KPI covered the Results.
7.6.4.   Objectives laid down by Bank (Annex G) are a good example of balanced objectives. Objective laid down by Askari Pharma are a good example of specific and measurable objectives. KPI of Sugar Mill and Cement Factory are specific, qualitative and must be well known to those responsible for attaining these.
7.6.5.    An Analysis
   a.       KPI cover only limited areas. These should be all encompassing. 
b.      There appears to be no structure (KPI) linking all business objectives and the PI.
c.     There appears to be no objectives, to measure the expansion of business. Therefore, no KPI counting the number of customers lost, customers gained. No PI to measure shelf space lost and shelf space gained.
8.0.       Summarizing the Reasons of Weaknesses. The possible reasons could be as follows: -
a.             Deficient and faulty goals. For instance HO and BU both working for financial goals alone.
b.             Obedience to administrative instructions and allegiance to command channel over taking obedience to customer and allegiance to business needs.
c.             Non-accepted or ill-accepted goals. Thus paying only lip service to the goals.
d.                                     Mismatch of personal growth goals and organizational goals.
e.                                     Failure of co-relation of incentive and rewards with the business goals and business gains.
f.                                      Ignorance, deferment and retirement of customer from the rightful position.
g.                                     The linkage of PI and KPI is either weak or non-existent from the business goals.
h.             The KPI and PI are redundant and have become a customary drill and routine. Therefore, even when in place, fail to make the desired difference.   
9.0.             The focus of Study was not the weaknesses of any of BU, but how to succeed in ‘business’ with the help of setting ‘objectives’ and ‘KPI’. I hope this effort contributes towards this end at AWT.
 
 
 
Annexes
A.         Askari Pharmaceuticals
B.         Real Estates
C.         Cement Factory
D.         Sugar Factory
E.         Askari Guards
F.         Askari Farms & Seeds
G.         Askari Bank Limited
 
________________________________________


[1] From F. John Reh, Your Guide to Management. http://management.about.com
[2] ibid
[3] Ivanovic, A., Dictionary of Human Resources and Personnel Management, third edition, 2003.
[4] Official website of AWT
[5] ibid
[6] Casio, W. F., Managing Human Resources, 6th ed, New York, 2003, quoted in Chapter 11.
[7] Developed at MANTEC&ARC, by OD team headed by Dr. Khattak HR.
[8] ibid