Implementing key performance indicator system
Background of implementing KPIs in the public sector and what the authors said about it
In recent years, Key Performance Indicators have become widely adopted as measurements by government sectors. In response to reformations in the public sector, governments have developed their own set of Key performance indicators to measure performance among different agencies. Unlike public organizations, public organizations are hybrid in nature. Thus, the public sector is widely recognized as a complex setting for implementation of key performance indicators. The public sector is regarded as an area of inherent complexity due to its distinctive characteristics. The complexity stems out of managerial culture, key players in the sector and political influences. The nature of the sector complicates levels of accountability and confounds managerial discretion. It is also a sector that experiences numerous reforms and one with uncertain outcomes. Expectations are high on social responsibility, social justice, equity, pressures for social change and democratic entitlements. Therefore, the concept of complexity characterizes the public sector.There are rarely absolute yardsticks by which to judge the performance of public sectors. While certain targets may be set, they are only determinable in regards to existing performance. As a result, the success of Key performance Indicators heavily relies on comparative data. The systematic publication of comparative data has now become a conscious policy in the pursuit of accountability in the recent past (Van et al., 2015).
What are the advantages?
Key performance indicators play an instrumental role in the public sector. Key Performance Indicators form part of the public sector’s a company’s measurable goals that are often tied to their strategy as revealed through KPI tools. Many of these goals are tied to the efforts of multiple people in various agencies across the public sector. The ability to cascade and align goals across multiple actors creates a shared accountability. Shared accountability is important to public sector’s success. Public sectors use Key Performance Indicators as the basis to analyze and track performance. As with budgeting, KPI’s instrumental role facilitate rational decision-making. Their role in facilitating decisions plays a central part in the politics and power of public sector life. In contrast to budgets, Key performance indicators indicate the purposes on which funds should be spent.
KPIs act as a form of benchmarking that often aid the assessment of value for money. Additionally, key performance Indicators may also serve as a means to foster political exchanges among competing factions as well as a means for solving technical problems. They may also be viewed as control tools and expressions of symbolic preferences in political bargaining processes. Key performance indicators are an instrument for action; a means of fostering conversation and an expression of societal values. Evidently, the use of key performance indicators has helped in the mobilization of organization action, distribution of responsibility, and provision of legitimacy. In particular, key performance indicators could be used to legitimize action through employing symbols in the political arena.
Public sector accounting, and specifically benchmarking and budgeting through KPIs, have an integral role in the social construction of norms and meanings that serve to facilitate arrangements. Accountability and policies are subject to the influence of accountings through which institutional, organizational, political and social agendas are pursued which can be contested as part of the daily experience by different actors.Key performance Indicators present an objective measure of performance. Essentially, the data enables management by facts. The evaluation of performance is based on achievements. Effective management requires having good key performance indicators that enable organizational members to have a clear understanding of what the organization expects. With current up to date KPIs, decision makers can quickly monitor and identify gaps in performance.
What are the drawbacks?
There are various drawbacks that are associated with the implementation of key performance Indicators. While a good strategic plan includes a solid set of key performance indicators that are meant to be translated into manageable operational actions, usually, a defined strategy may fail to achieve the objective, particularly when there are too many or unaligned Key performance Indicators. Thus, key performance Indicators can weaken the focus on objectives, making it challenging to establish a consistent implementation plan among key stakeholders. Key performance indicators should provide agencies with concrete links to objectives. A large list of key performance indicators may signal larger problems and a lack of strategic focus. Another disadvantage of key performance indicators is in their measurements and implementation. Measurement and analysis can be expensive (Zakaria et al., 2011).
What are the arguments for and against implementing KPIs?
Key performance Indicators signify factors that organizations need to monitor and benchmark. KPIs provide the mechanism for evaluating or measuring defined factors to determine impact or progress. KPIs specify what is measured while the method of assessment detail when and how it should be measured. Based on the above statement, the argument for implementing KPI is to assist an organization in defining and measuring progress towards organization goals. Key performance indicators are just one among many ways of using measurements and evaluating management initiatives (Chambers, 2013). KPIs give very focused view that is important in monitoring activities for movement in the desired direction. While monitoring KPIs is important in providing valuable inputs to impact evaluation, unless activities have a direct quantitative output, they do not provide sufficient data to allow for effective evaluation. Some researchers argue that organizations operating with key performance Indicators have found that they make little or no difference to performance. The reason is that there lacks a suitable environment in which KPIs can operate. This is the argument against implementing KPIs(Parmenter, 2015).
Key performance indicators in the private sector
Key performance Indicators are crucial for private sector business. They are not a new phenomenon as the private sector has long embraced them as an essential tool for management and tracking of progress towards organizational goals. Understanding customers are critical and drives many aspects of profit, expenses, and forecasted revenue. Unlike public sector organizations, private sector organizations are profit driven. Predictive KPIs are used to influence results and drive changes in behavior. Private sector organizations use a strategic collection of both financial and nonfinancial indicators to capture all aspects of operations(Kerzner, 2011).
What are the advantages?
The use of KPIs in the private sector has many advantages. The first advantage is that the use of key performance indicators drives organizations operating model. In different functional areas of business, there are a number of KPIs that drive the outcomes on a daily, weekly or annual basis. Functional areas include departments such as sales, marketing, product development, customer service, operations, and finance. Once clear outcomes have been established, it is possible to determine the Effectiveness and Activity and measures which drive outcomes. Despite the importance of results, activities must be managed effectively to achieve results.The second benefit of KPIs is that they help in the clarification of performance expectations. Employee engagement begins with the ability of each employee to recognize their role in the achievement of organization’s objectives. Key performance indicators help to clarify performance expectations for different functional teams and every role in the organization (Bakar et al., 2011).
The involvement of different stakeholders in the selection of the right KPIs helps in clearly communicating performance thresholds and expectations in an unambiguous manner. Involving key stakeholders also help in getting buy-in and alignment.KPIs help managers to be more objective. Key performance indicators provide objective measures of performance. Effective manager necessitates the availability of data. Availability of data allows managers to base their decisions on facts rather than assumptions. This promotes objectivity in management. Key performance indicators also drive business executions (Muchiri et al., 2011). When KPIs scores are available and up to date, they ensure consistency of performance and outcomes.An additional advantage of using key performance indicator in the public sector is the ability to focus attention on important issues(Chambers, 2013). Private sector organizations are faced with numerous competing demands. With the use of KPIs, it is possible to keep focused on activities that drive performance. KPIs also promote accountability in private sector organizations. With performance indicators, people can be held accountable for their performance and outcomes (Arnaboldi et al., 2015).
What are the drawbacks?
It is difficult to set up and manage Key Performance Indicators. Key performance Indicators may also be written in a language that allows people to avoid the intent of a KPI or game the system. The impact of such actions may only amount to the payment of extra bonus among employees and the organization remaining constant or performing worse.The reasons for implementing particular Key Performance Indicators may not be effectively understood by the workforce. The result is that employees put effort to attain goals for which they lack meaning or context. They may purpose to achieve their KPI, but their work effort may be misaligned or often misdirected. As a result, the implementation of KPI may not result in any benefit to the organization (Lee & Whitford, 2012).
Arguments for and against implementing KPIs
When Key performances Indicators are established effectively, they enable organizations to predict and quantify impacts. For example, if an organization requires improving customer service, it can set up plans to training existing consultants or hire new consultants. Setting up key performance indicators can help the organization measure the effectiveness of the two initiatives and understand which has the most positive impact on customer service.The argument against the implementation of key performance indicators is that they do not improve performance. KPIs only provide indications that signal progress toward goals and objectives as well as opportunities for improvement. Additionally, the reasoning behind the key performance indicators may not be properly analyzed by management and executives. The practice does not sit well with the majority of the organizations. Often, they are set without understanding their real impact on the organization (Popova & Sharpanskykh, 2010).
How that is different from the public sector.
Comparisons between these two sectors
The era of accelerated change has forced both private sector and public sector organizations to increase their pace of decision making. Key performances Indicators are implemented in both sectors to achieve particular goals. However, private sectors and public sectors have different goals that each must achieve. Private sector organizations are profit driven while public sector organizations are not profit driven. Thus, the implementation of KPIs in the private sector is to make organizations more competitive while the implementation of KPIs in public organizations is to make governmental agencies more accountable to taxpayers. When implementing KPIs in the public sector, a considerable amount of ‘translation is necessary to convert the language of the private sector into appropriate terms suitable for public nonprofit organizations (Yang & Holzer, 2006).
The second distinction is the purpose of implementation of key performance indicators. In the public sector, increased interest in implementation of key performance indicators has been influenced by more complex factors, including increased legislative scrutiny of operations, increased citizen demands: accountability; performance-based budgeting, ongoing shifts from input to program, the resulting need to use public funds, mounting fiscal pressures and deliver public services as effectively and efficiently as possible (Yin et al., 2015). As a result, KPIs have become essential parts of the range of tools governments used by governments in many nations to systematically evaluate monitor and continuously improve services performance.Another difference is in the measure of organizational performance. In the private sector, most analyzed KPIs are related to market share. Private sector organizations equate market share to performance. On the other hand, governmental agencies exist to fulfill their mission which is an inherently governmental function. The key metric for public sector performance is mission effectiveness rather than financial in nature(Alwaer & Clements 2010).
Good and bad implementation for each sector
An example of KPI implementation in the public sector is the Commonwealth introduced in the framework for the Budget in 1999-00. All agencies and departments were required to identify explicit outcomes intended to define the preferred impact of the programs on society and government’s activities. The implementation failed as the impacts were not connected to the strategy; hence, the original intent of the KPI implementation is not achieved. A successful implementation of KPIs in the public sector is the case of Malaysia.
What are the drawbacks?
Key performance indicators have a limitation of producing exact results which often present rough guide rather than a concrete measurement. Once designed, key performance indicators may be difficult to change unless one is prepared to carefully disregard built-up comparison yardsticks. Key performance indicators are also subject to abuse by managers (Niven, 2011).
Performance management in organizations (HRM- Performance management)
Performance management is a sum of various practices conducted by organizations to ensure that employees’ performance positively contributes to business objectives. Performance management brings in a set of effective people management practice, including organizational development, measurement of performance and learning and development. In performance management, managers and employees work together to monitor, plan and review work objectives and their desired contribution to the organization. Performance management is an ongoing activity that involves setting objectives, providing constant coaching and feedback and assessing progress to ensure employees meet personal and organization objectives.
What authors said about it?
A talented and skilled workforce forms the lifeblood of every enterprise. Organizations recognize the importance of retaining right people as the war for talent escalates. Authors unsurprisingly consider performance management as a top challenge for organizations. Additionally, many organizations treat performance management as a yearly event. However, studies show that ongoing focus on performance management has a positive impact on business results. Performance appraisals and assessments is a piece of performance management. To build a skilled and empowered workforce, organizations require more than performance appraisals. However, performance appraisals form a critical component of performance management. Performance Appraisals involves assessing individual employee performance in a systematic way. It is a developmental tool for both employee and the organization. These methods are categorized into: traditional methods and modem methods. While traditional methods emphasize on the rating of the employee’s personality traits, such as dependability, initiative, intelligence, drive creativity and leadership potential, modern methods, place emphasize on the evaluation of work results such as job achievements rather than personal traits. Each method of performance appraisal has its advantage and disadvantage. Thus, a method that is suitable for one organization may not be non-suitable for another. Setting performance standards and expectations conducting appraisals and providing feedback enable the organization to achieve the desired results through managing employee performance. Clear communication is important in performance management. Given the constantly changing business environment and competition, human resource managers need to understand the processes that can facilitate the achievement of goals.Performance management is a critical business driver to help organizations achieve desired results.
What are the arguments for and against performance management?
A key element of performance management is employee training and development. Performance management techniques can help improve individual, team and organizational performance. Providing employee learning and development opportunities for employees enable them to undertake challenging assignments.
Meaningful Measurement of Performance
Performance management is often used as the basis for providing employees with fair appraisal based on their performance. Different methods may be used to evaluate employees. Organizations then take the initiative to provide constructive feedback on what is expected of employees and align the expectations with overall organization goals and targets.
Aside from evaluating employee performance, performance management systems help management in understanding employee needs. Human resource managers can understand what employees are looking for to improve job satisfaction. Performance management helps increase employee retention in organizations. Given that Performance management is based on results, employees receive equitable treatment. Essentially, performance management acts as a tool for employee retention.
Arguments against performance management
Performance management is costly to organizations particularly now that organizations are making various attempts to cut down the cost of operations. As a result, the decision to offer employee training is dependent on such factors. Even though an organization may recognize the effectiveness of training to retain and maintain employees, it may be difficult to implement such measures due to constrained resources.
Performance management systems and frameworks may require constant modifications to align with the needs of employees and organization. The nature of performance management systems and frameworks present numerous complexities.
Unrealistic Performance Targets
Unrealistic performance targets may be set by management particularly when the organization is desperate to achieve organizational goals. Set targets are often unattainable or difficult. As a result, employees may be constantly dissatisfied (Gruman & Saks, 2011).
Performance measurement involves collecting, analyzing and reporting information on the performance of a person, team, system or organization. Evidence of performance should be first gathered to allow for measurement. Specifying performance measurements before assigning any responsibility helps the employee keep track of progress. Various ways may be used to monitor performance. These include observation, reports and records, financial records, attendance, specific work results and constructive and commendations critical comments about the employee’s work.
What authors said about it?
Performance measures are an important constituent of Total Quality Management programs. Managers directing efforts of a group have a duty to know where and when to institute a range of changes. Such changes cannot be sensibly implemented without knowledge of the suitable information upon which they are based. Performance measures comprise of units of measure to provide the magnitude of the element being measured. They are tied to goals or objectives. Managers use performance measures to identify any deviation from design specifications and variations in a process.
What are the arguments for and against performance management?
Performance measurement improves productivity and mission effectiveness by aligning strategic activities with plans. It also allows managers to identify best practices based on a rationale. Additionally, the visibility provided by performance measurement facilitates better and faster decision making. Visibility provides incentives and accountability based on real data rather than subjective judgments and anecdotes. Performance measurements are subject to biases. They are also time-consuming and may discourage employees (DeCenzo et al., 2010).
Mendelow matrix of stakeholders
Stakeholder analysis involves identifying groups or individuals that have a high likelihood of being affected by a proposed action. The Mendelow matrix helps in sorting individuals and groups according to probable impact of carrying out a particular action. A key aspect in stakeholder analysis understands key stakeholders as organization’s objectives are often governed by key stakeholders. Key stakeholders are determined using stakeholder mapping. Mendelow’s matrix is one of the techniques used in stakeholder mapping. Stakeholder mapping aids in dealing with stakeholders’ conflicting demands by identifying stakeholders expectations and power and helps to help establish priorities(Manowong & Ogunlana, 2010).
Various studies conducted on the implementation of Key performance Indicators in the public sector reveal that the adoption of the measurements has been successful in evaluating agencies’ and individual performance. However, they recognize the difficulty in implementing KPIs in the initial stages. After implementing the approach for several years, there have been numerous improvements in the administration of KPIs in public sectors. Despite the complexity, performance measurement has played a pivotal role in reform initiatives. Public sectors have witnessed a boost in indicators. Some relevant success factors used by public sector agencies include delivery in full on time for key services, finding efficient ways to do things, encouraging and adopting innovative ideas from staff and increased adaptability and flexibility. Key performance indicators have characterized the Private sector for a long time compared to the public sector. They are used as essential signals that assist indicates whether an enterprise is functioning according to set objectives. Different organizations have adopted different key performance indicators according to their operations and objectives. To build a skilled and empowered workforce, organizations require performance measurements and management that should be aligned to strategic goals
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