With the end of the calendar year fast-approaching, the subject of 2013 KPI’s is now approaching top of mind at many companies.
KPI’s are shorthand for Key Performance Indicators – for any readers who are residents of Mars that is – with the KPI ‘bug’ having long since gone viral across the four corners of planet Earth.
Before the ubiquitous acronym took precedence, a grab-bag of other labels applied to what are now more often termed KPIs. Among others, the use of the term KPI has in part replaced vernacular such as management incentives, business performance measures and management accounting metrics.
In practice, KPIs form a continuum with these and with other general management measures, so KPIs in the broader sense can relate to everything from individuals to the department, the division, the entire company, safety performance and also remuneration parameters such as bonuses and piece work.
Unintended consequences are the things to watch out for when setting KPIs. Here is a personal example from WMC days of an ‘undercover’ KPI – on which I think the statute of limitations has now well and truly expired.
The early 90’s found your scribe move into a company-owned fibro-duplex in East Kambalda. The previous occupant had let the garden, if it could be called that, run to native bush – but the home itself was in good shape.
As no previous employer had ever provided cheap accommodation as part of a salary package I was more than happy with the new abode – which was only 50m from the bottle shop in one direction – and 100m from the town swimming pool in the other direction.
Kambalda in those days was buzzing – with 13 nickel mines, five gold mines and also a major exploration budget that required geophysical input of various types. Having been hired as one of only two mine-based geophysicists, there was certainly no shortage of work on offer.
As a consequence, weekends were for the most part spent at work, especially given that my wife was at that time mostly living and working some 700km away in Perth.
Now for anyone who has not lived in a mining town, a contextual point here is useful by way of background explanation. The head of a mining town is not in fact the operations manager or even the general manager: It is actually whoever manages the housing allocation across the town. So, for example, upon receiving the news that the Trench family was set to increase in number by 50% – who do you think got to know that wonderful family news first? The mother-in-law? My parents? Neither found out first actually. You guessed it – the housing co-ordinator was the first person to be told – closely followed by my boss. Why? With so many operating mines around the place, accommodation in Kambalda was in very short supply indeed - and the gestation period (no pun intended) to move to a property with an extra bedroom could be up to six months – so the idea was to get into that housing queue as quickly as possible.
Now this is where the undercover KPI part comes in.
Your scribe’s application to move to a property with an extra bedroom was turned down – despite having satisfied the overt corporate KPI to achieve an accommodation upgrade – being a pregnancy! So what was the problem then? Your scribe was quietly advised that there was a second, implicit, ‘undercover’ KPI also –and one on which I had failed miserably. What was that KPI exactly? I had failed to achieve a pass mark on the unwritten KPI of gardening. That is, the continued lack of anything vaguely green, currently alive, or demonstrating even the remotest potential to grow outside my Larkin Street duplex was my downfall.
The answer? Short of quickly calling in a team of gardeners, I chose to pen a letter to senior management asking whether a housing policy that rewarded couples who spent their weekends in bed together (with the greater potential for pregnancies) while also nurturing a well-kept garden on weekends was really in the best interests of the company. Surely someone who at least on occasions put work ahead of gardening – and ahead of other forms of cross-fertilisation too – should not be denied a bedroom for a new baby.
It worked: Soon afterwards, a property with an extra bedroom was made available to me.
So that’s it. The clear lesson to all is to beware those ‘undercover’ KPIs in corporations – and for managers to avoid the unintended consequences of ‘wrong’ KPIs too. This lesson applies whether you are on the receiving end of the undercover KPI - or else are involved in its conception!
Allan Trench is a Professor at Curtin Graduate School of Business and Research Professor (Value & Risk) at the Centre for Exploration Targeting, University of Western Australia, a non-executive director of several resource sector companies - and the Perth representative for CRU Strategies, a division of independent metals & mining advisory CRU group (email@example.com).