On KPIs and capability. On a long and difficult journey on a steep pass, with a heavy load at the back, we need to know where we are on the road towards the destination. And perhaps more importantly, we need to know whether the truck is in good order and its engine has enough power to get us there.
In the truck metaphor, the KPIs correspond to the position of the truck on the road. KPIs are traditionally lag indicators of overall performance – they say where the truck has been and where it is now. This is essential information but it says little or nothing about how the rest of the journey is likely to unfold.
Capability is a lead indicator of performance and managing capability proactively is essential to high performance.
To know what is really happening, we need to monitor the truck itself and the state of its engine – this corresponds to the capability. If the engine is sound, then there is a good chance that the truck will reach the destination. On the other hand, if the engine is worn out or overheating, we can reasonably conclude that the truck will suffer a breakdown and not reach the destination in time. In such a situation, the best policy is to fix the engine in the truck before it breaks down to minimise disruption and delay.
IN PRACTICE Capability can be measured with indicators, and because they are lead indicators they provide very valuable information. If they point to a problem in a KPI or team, then the best policy is to fix the problem before it impacts negatively on the performance. Conversely, if the capability indicators are strong (that is, the truck and its engine are strong) then we may be able to drive the truck faster on the road and reach the destination sooner. This corresponds to raising the bar for the KPIs and driving towards a higher overall performance.
KPIs AND CAPABILITY INDICATORS ARE COMPLEMENTARY Measuring both KPIs and capability indicators and assessing them jointly gives managers more useful information than using one set of indicators only. It provides a superior assessment of the risk associated with reaching the destination in time and a much better way to manage the journey to a successful outcome. We’ll discuss how to do that in a future blog.
We’d love to hear your thoughts on this subject.