KPI-based personnel performance evaluation systems are gaining popularity in Russia. The main advantages of such mechanisms are in a rational reflection of the activities of companies.
KPI: what is it
KPI (KPIs) is the English abbreviation for “key performance indicators”, in Russian is referred to as KPI - key performance indicators (sometimes - parameters) of effectiveness. But in the original foreign sound is used as the norm. KPI is a system that allows you to evaluate the performance of employees of a company with a view to achieving goals (strategic and tactical).
“Key indicators" allow the company to analyze the quality of its structure, the potential in solving problems. Based on KPI, a goal management system is also being formed . This is the most important factor: if there are no signs of targeting performance indicators , then there are no “key indicators” to apply to. Goal management and KPIs, therefore, are two interrelated phenomena. The first involves first of all forecasting the results of work, as well as planning how these results will be achieved.
Who invented KPI?
History does not give an unambiguous answer to this question, however, one can trace how world management has come to understand KPIs, what it is and how it is useful. In the late 19th and early 20th centuries, sociologist Max Weber determined that there are two ways to evaluate the work of employees: the so-called "Sultan" and meritocratic. According to the first, the chief (“Sultan”), at his discretion, evaluated how well a person copes with his duties. The rational beginning here plays a secondary role, the main thing is the purely emotional perception of the work of the subordinate.
The meritocratic method is when the results of labor are evaluated according to real achievements, with the inclusion of objective measurement mechanisms. This approach was adapted by management theorists in Western countries and gradually crystallized into what we know as the KPI system. An important role in systematizing the rational assessment of staff work was played by the work of Peter Drucker, who is believed to have turned management into a scientific discipline. The scientist’s concepts directly state that there are goals, and there is an assessment of the degree of their achievement through key performance indicators.
KPI Pros
The main positive side of the KPI system is the availability of a transparent labor assessment mechanism for all employees of the company and the work of the enterprise as a whole. This allows the authorities to evaluate the performance of all subordinate structures in real time, to predict how tasks will be achieved and goals achieved. The next plus of KPI is that management has a tool for adjusting the work of subordinates if the current results are behind the planned ones.
If, for example, according to the results of measuring activity in the first half of the year, it is revealed that such and such efficiency parameters are not high enough, then workshops are held to identify the reasons and encourage employees to do the work better after the next six months. Another positive side of KPI is the feedback between the specialist and the manager. The first will receive not just instructions and sometimes seeming biased nit-picking, but well-grounded remarks, the second will improve performance by concretizing errors and shortcomings in the work performed by a subordinate.
Cons KPI
The results of evaluations within the framework of KPI (performance indicators as such) may not be interpreted quite correctly, and this is the main drawback of this system. As a rule, the likelihood of a similar problem arising is the lower, the higher will be the attention at the stage of forming criteria for how to evaluate the effectiveness parameters. Another minus of KPI is that in order to implement this system, companies will have to spend a lot of resources (usually calculated in time, labor and finances). It is, of course, about working on key performance parameters of the proper level of development. There is a possibility that it will be necessary to conduct a large-scale retraining of employees: specialists - for changes in tasks, and hence working conditions, management will have to master new methods for evaluating the work of subordinates. The company may not be ready to give the team extra time to master the innovations.
The intricacies of implementing KPI
The main task in introducing the KPI system (“from scratch”) is to prevent employees from negatively treating it. Therefore, the management of the company must intelligibly convey the meaning and practical benefits of innovations to each of the subordinates, whose work is subject to subsequent evaluation for effectiveness. The best methodology here, according to some experts from the HR field, is an individual presentation, an explanation to specialists at specific positions: KPIs - what is it and why should this system be implemented in a company.
The mistake will be the unconditional imposition of efficiency parameters in an orderly manner, but the necessary step is an appeal from the top officials of the company. If, for example, the line manager informs subordinates in his unit about the imminent implementation of KPI, then this information should also be confirmed by the general director. The specialist should understand that the system of key performance parameters is not an invention of the boss, but an element of the strategic policy of the entire company.
Optimal KPI Implementation Times
Among experts, there is an opinion that KPI indicators, when it comes to the system, should be implemented at one time at all levels of company management - from ordinary specialists to top managers. According to this point of view, the timing of the implementation of key performance parameters cannot be extended in time: the system starts working immediately. The only question is how to optimally choose the moment of its launch. There is a point of view that it is enough to notify employees about the start of KPI in about three months. This turns out to be enough for the company staff to study the specifics of the future assessment of the effectiveness of their work.
There is also the thesis that for some time KPI can work in parallel with the previous payment system. Depending on the degree of liberalism of the bosses, the employee will be able to choose according to which scheme he will be paid. You can completely motivate a person to work on the new KPI through bonuses and bonuses, the conditions for which will be clearly spelled out in key parameters.
Stages of creating a KPI system
Actually, as such the introduction of KPI mechanisms is preceded by several stages of preparatory work. Firstly, this is the period associated with the formulation of strategic goals that are set for the company. Within the framework of this stage of work, the general concept is divided into tactical sectors, the effectiveness of which is yet to be measured. Secondly, it is the development of key performance indicators, the definition of their nature. Thirdly, it is the work of distributing the powers related to the implementation of the system, so that each responsible person asks a question like “KPIs - what is this?”
Thus, all indicators will be assigned to specific individuals (units) in the company. Fourth, the adjustment of current business processes may be necessary (if an updated strategy requires it). Fifth, this is the development of a new employee motivation system , the creation of payroll formulas according to fresh criteria. After completing all these procedures, you can start the KPI system.
KPI Requirements
As mentioned above, KPIs are key performance indicators that are inextricably linked to the goals of the company. The quality of targeting is the main requirement for the KPI system. Goals can be formed according to different principles, but one of the most popular in the HR environment is the SMART concept. It means “specific”, “measurable”, “achievable”, “relevant to the result”, “time-bound”, and, as a result, giving worked out and quality KPI.
Examples of goals that meet these criteria: “open so many (measurable) outlets (specific) in the city (relevant) in the first quarter (time-bound)”, or “sell so many air tickets in the direction of such a country for three weeks". Each goal should be divided into tasks, which, in turn, are reduced to the level of personal KPIs (for employees or departments). The optimal number, according to some experts, is 6-8.
KPI Automation
One of the factors for the successful implementation of KPI is the technological infrastructure. Since the key performance parameters are a set of rational indicators, the computer will do very well with them. There are many software solutions for managing KPIs. The possibilities available in such distributions are quite extensive. Firstly, it is a convenient presentation of information (in the form of graphs, analytics, documentation) about the processes associated with KPIs. What does it give? Mainly, the unity of perception of data, reducing the likelihood of misinterpretation of numbers. Secondly, it is the automation of the collection and calculation of performance indicators. Thirdly, this is a multidimensional analysis (with very large volumes of numbers) of analysis, which would be difficult for a person without a program. Fourth (if there is a network infrastructure), this is the exchange of information between individual employees and the establishment of feedback channels “head-subordinate”.