Four steps to establishing the right KPIs for your transformation strategy

There are many technology, geopolitical and commercial forces currently impacting our organisations and pressuring existing business models and mindsets. Many organisations will need to transform, and these programs will require clear and effective governance. Before proceeding too far, let’s agree a definition for transformation.

True transformation requires the presence of three factors i) identification of disruption, ii) development of strategy, and iii) execution of change. And all three of these factors should have appropriate KPIs. So, in a fast moving environment, here are 5 steps to help you establish the right KPIs for your transformation strategy.

#1 Acknowledge the difference between BAU and transformation

There’s a difference between measuring the performance of a transformation program (changing the business) and managing the existing Business As Usual (BAU) operations (running the business). This is especially relevant because many people who are expected to govern a transformation project might have never managed one, and may therefore approach this accountability with an unrealistic view of what the project should look like, the scope of its objectives, the degree of precision possible and the inevitable ambiguity that’s inherent in all transformation efforts.

It’s pretty straightforward to review and compare performance in BAU because a high degree of precision, predictability and causality is possible. There are historical results, established scorecards and a clear monthly or quarterly rhythm with supporting KPIs and metrics already produced by specialist teams for review.

By contrast, a transformation program is ambiguous. There’s less certainty and less precision. There are mysteries and risks. There are creative blind alleys and unexpected complexities. Your working assumptions may be wrong, or deliverables might take longer to create or approve as the scope, reality and gravity of the change becomes more apparent. Whilst this appears self-evident, when it comes to transformation, it’s often tempting to use existing measures, and to assume that everyone—including those doing and those overseeing the work—will know instinctively what’s expected of them.

#2 Identify the right KPIs

The most important thing to remember when setting KPIs is to choose metrics that are objective, few in number, linked to an outcome (the ends) rather than inputs (the means) and are simple to calculate. Good KPIs must also reflect the resources you have available, and can be assigned to people and/or teams. Importantly, they must address the key disruption that ignited your transformation program in the first place.

For example, in the car industry it might be the migration from internal combustion engines to electric vehicles, or in power generation it might be renewables versus fossil fuels. Whatever your industry, you must start tracking some of the main metrics that illustrate the degree of change, and the speed of this change, and measure that in your KPI’s.

Once you’ve settled on your key KPI’s, these metrics can then form the basis of a dashboard that will keep track of the transformation and its delivery of the original strategic objectives.

#3 Cascade them to the right people

As the transformation leader, you simply cannot do it all, so you have to select the right people and delegate work to effect large-scale change. The right set of KPIs can be used to ensure that everyone is aligned. KPIs will help you get people to understand the objectives, agree and buy in to the transformation plan, and accept the new definition of what the organisation will look like. You must also review the scorecards of all other executives and ensure that none of them are likely to delay, obstruct or duplicate the transformation.

#4 Assess performance (without amber)

The need for honest and regular feedback is even more important during times of transformation. Having cascaded a clear set of KPIs, it’s critical to hold people to account, while being sensitive to the reality that a transformation is more ambiguous and difficult to predict than that of a BAU environment, and therefore requires a slightly different approach.

Having set up the environment for effective review, and given that the very future of the organisation is at stake, assessment of performance must be:

• honest and objective
• clear and transparent
• regular and timely
• based on outcomes achieved not efforts made
• direct but sensitive

The easiest way to measure progress against the transformation is to be ruthlessly honest and use either green (achieved) or red (not achieved). Do not use amber. This simple binary approach removes all subjective interpretation and ambiguity. You’re either achieving your goals or not. Therefore, be clear, direct and objective about whether a deliverable or change objective has been achieved in absolute terms, and consider whether it’s been delivered on time, on budget and on schedule. And this means it’s either green or it’s red.

Only after you assess actual performance should you then dive in and interrogate the results or reasons for not achieving them. Without taking this approach, everything will tend to become amber over time. And let’s face it, a good definition of an ‘amber’ issue or deliverable is one that doesn’t yet know it’s ‘red’. Beware the so-called watermelon project that’s green on the outside, and red in the middle.

Remember that your transformation KPIs should measure the degree to which you successfully implement your strategy and achieve the outcomes you desired. Everything else is a distraction. Never forget that transformation is inherently difficult, and different to BAU. It’s therefore important to consider this when you select your KPIs and cascade them to your executive team. By creating an environment of rigorous review of the outcomes achieved rather than only the inputs used, you may be surprised at how fast your transformation proceeds.

Written by Adam Bennett.
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