Regardless of the size of an organisation, key performance indicators used as a measuring tool across all areas of the operation are proving to be vital for the improvement of operational and organisational management.
Victoria's Hobsons Bay Council has found applying key performance indicators (KPIs) in customer service management so successful in changing its service delivery culture that senior management is now examining adoption of Balanced Scorecards, which use KPIs in a more sophisticated form of analysis.
The KPIs have been used to refine and review several key service elements within the council over the past 12-18 months. Their success has led the council to look at further improving the effectiveness of their reporting system, according to manager of information services Michael Govan.
Elsewhere, the Local Government Division of Tasmania's Department of Premier and Cabinet uses KPIs to provide a framework for measuring and comparing the performance of councils. In October 2001 the Local Government Division launched a system for measuring Tasmanian council performance. The new system was designed to allow Tasmanian residents and councils easy access to the performance of their councils. All 29 Tasmanian local councils provided data voluntarily.
The Local Government Division has found that the KPIs:
- Enhance performance measurement by councils.
- Enable benchmarking and identification of best practice.
- Improve accountability to the community.
- Establish performance trends over time.
Performance measures used by the Local Government Division in the KPI system look at:
- Governance
- Management and finance
- Regulatory issues
- Infrastructure and utilities
- Community services and development
The Tasmanian state government is currently developing a common point of entry for its local councils with the financial support of the federal government. The aim is to make KPI-based information available online to all ratepayers.
KPIs and Balanced Scorecards are far from new to Australian government agencies. A number of major agencies including Centrelink, Telstra, the Department of Defence and the Australian Tax Office have been using them with considerable success for some time. But these days it is not just the big end of town that is finding them useful. At the local government level, council information officers are finding them invaluable.
Valuable Resource
At the national and international corporate level, KPIs and Balanced Scorecards are proving to be valuable tools. Telstra's director of finance, John Stanhope, is a strong advocate of using KPIs and Balanced Scorecards to measure the performance of his large and complex organisation.
"Telstra began using Scorecards about 10 years ago, but it is only in the last two years that we feel we have really got it right," he says. "A crucial indicator of the effectiveness of the Scorecard reporting system is supplementary information. If people feel the need to add supplementary information to present a complete picture, then the Scorecard probably needs some more work."
Telstra defines its strategic objectives in terms of a compass, with four points indicating the overall corporate direction. While Stanhope agrees a good strategy is vitally important, he warns it is what you measure that counts.
"In practical terms, it is the execution of the strategy that counts. The strategy may tell you where you are going but it is the details that will show you how to get there. For this reason Telstra's management is wedded to using Balanced Scorecards," he says.
Hobsons Bay Council currently uses KPIs to measure service delivery across all areas of operation and finds they are proving to be crucial tools for operational and organisation management. Information services manager Govan says senior management is now examining the adoption of Balanced Scorecards. Examples of this are the frequent analysis of KPIs to improve customer service requests (operational) and the enterprise agreement targets for organisational improvement.
While there will always be other management systems available, the bottom line is how well a system works in achieving its objectives. Govan is quietly confident that choosing KPIs was a good move and is pleased with the results so far.
"Improved customer service performance is the key result from using KPIs," he says. "The council's four key service metrics - customer acknowledgment, service processing, communications and customer satisfaction levels - are all improving. This is a one size fits all' approach to customer service management whereby all service areas are expected to deliver to the same standards."
The most significant improvement area in customer service request management has been the effectiveness in resolving customer issues. The council has seen a 33 per cent improvement in the first three-quarters of the 2001-02 year.
"Efficiency, the second dimension of service request management, has also seen improvements and council is currently analysing how consistency in this area can be achieved. The system has provided a significant improvement in the capture and processing of customer interactions with council," Govan says. "The AxsOne One View' solution, when fully implemented, will enable council to leverage off the vast amounts of information captured and use this in increasing council's understanding of customer service-based issues and our performance in meeting the customer's expectations."
However, with the benefit of hindsight, Govan would do things a little differently. He says the early process of capturing and reporting KPI results was ad hoc. If he started again he would spend more resources in the planning and definition phases to achieve greater results. "That is not to say we can't achieve the full potential," Govan says. "What it means is that while we continue to develop and implement KPI reporting, building up to the Balanced Scorecard approach, some retrospective defining of KPIs and what we want to be achieved is now being done."
It is not uncommon for agencies introducing KPIs to meet with initial resistance. Govan says as useful as they are now, as with most management innovations not everybody was immediately convinced, and when the system was first introduced there was some conflict. "Initial reactions were mixed with some negativity surrounding the information being produced. It seems likely that the main reason for this was that the performance results were not always complimentary and therefore threatening to some service areas," he says.
The council found it needed to apply a lot of effort to working with service areas in understanding what the KPI results reflected and what changes were required. Some of these changes were subtle while other areas required significant change to effect better performance in customer service management.
Likewise Telstra's Stanhope sees the Balanced Scorecard system as more than just a sophisticated management information tool; he also sees it as a way of modifying behaviour. "If people know what is being measured - the time it takes to connect a phone for example - they know what they should be achieving and will usually behave accordingly. The Balanced Scorecards help achieve results by making it very clear to everyone in the organisation just what the right' result is," Stanhope says.
Reporting Crucial
Large and complex agencies like Telstra find getting the most out of KPIs means generating a range of reports.
Stanhope says Telstra uses a range of business intelligence tools such as S-Base, Alpha and B Object for KPI reporting. The upside of these tools is that they make reports easier to generate and less time consuming to put together, but the downside is that this same ease of report generation can lead to an excess of reporting.
"This becomes a real cost when the labour intensive work of actually analysing the information gathered is added," he says.
Stanhope believes in the "keep it simple" approach. He is moving, where practical, towards using the Balanced Scorecard system as the only management intelligence report. He believes the system is now sufficiently refined to provide most of the information needed by Telstra's senior management.
"I acknowledge that some people like to produce feel good' reports and perhaps there is a place for that, but at the end of the day there is a cost in that. You really have to ask the question: Why?'," he says. "In my view the only cost-effective report is one that provides only actionable information. If you ask the question: What are you actually going to do with the information in this report?', and the answer is not clear, then it is not providing actionable information."
Similarly Hobsons Bay Council has used several reporting tools for extraction and compilation of KPI reports. It is currently piloting a solution with an eye to providing greater reporting functionality, ease of use and analytical tools to explore service management performance issues.
"The prototype consists of predefined reports, which can be drilled down from organisational performance views to single issues including detailed descriptions of events," he says.
While the KPI system can be applied to most agencies and enterprises using some of the specialised software available, Govan says Hobsons Bay Council initially chose to use its existing system to support reporting. "The council uses a Lotus Notes-based customer service management system (IT Factory). This system comprises a service management module; a customer relationship module and an information management system. The project will eventually include other systems including HR management, financials and governance."
In the meantime, Govan hopes to improve the efficiency of the systems and is looking at various options for the council.
Getting a Clear Picture
According to Stanhope, a crucial factor in creating a Balanced Scorecard system is to get the time management aspects right.
"The balance between lag' and lead' indicators is crucial," he says. "If you have too many lag indicators - such as the last month's expenditure - the Card will not give you a clear picture of what's next. You also need information on items like the costs/expenditure ratio to show you where you are heading."
Stanhope says Telstra, which uses SAP for financials, currently uses a range of business intelligence tools to create its Scorecard reports, but plans to move to an integrated Web-based reporting system in the near future.
Telstra reviews its strategic priorities annually, and resets its Scorecard report to match. Senior management meets once a month and takes four to five hours to access the information provided by the Scorecard. Planning for the next month is based on this analysis, and any issues needing further investigation are flagged. Telstra has refined its Scorecard system to the point where it fits on one page and uses about 40 KPIs to show vital information about how the organisation is travelling.
It may have taken years to get them right but it is clear that Balanced Scorecards are an enduring part of Telstra's management culture with a strong commitment to the system from all levels of the organisation.
With such a good track record, expect to soon see KPIs and Balanced Scorecards appearing as a management intelligence tool for an ever-expanding number of government agencies.
Telling the Tale
A key performance indicator is a measurement of a single process, activity or result. It might be the time it takes to perform a regular task - say, backing up a computer system - or it might show the rate of staff turnover in a particular location.
Each KPI tells a part of the overall story, and carefully selected sets of KPIs can provide a useful insight into organisational health. Balanced Scorecards also use sets of KPIs and are a more complex version of the same basic principle.
How can it work for you? Suppose you are a senior manager and have to cut your costs by any means possible. You look at the financial reports and decide to share the pain by making an across-the-board 5 per cent cut. This results in your high-cost but innovative product research team shelving several potentially lucrative projects while a less productive administrative area that could have survived a larger cut gets off relatively lightly.
A bad management decision perhaps, but a reasonable one based on conventional reporting.
Key performance indicators and Balanced Scorecards are a system of management intelligence designed to avoid such ill-informed and costly decisions.
Toolpack Consulting, a US organisational development firm (http://www.toolpack.com/index.html), describes it this way: "A sheet of paper with numbers on it can be created by one person and implemented by sheer force of authority. However, the point of KPIs and a Balanced Scorecard reporting system is to:l Align all members of an organisation around common goals and strategiesl Make managers' jobs easier by clearly prioritising initiativesl Provide effective feedback to people on the issues that countl Be an essential decision-making tool for everyone in the organisation"If a single person tries to force a system into place, chances are it will not reflect the organisation's key strategies, goals, strengths and weaknesses," advises the firm.
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