Making KPIs “SMART”

22 April 2019
Joseph Wong
 AGENDA

 Overview of Project
 “Driving Without a Destination”
 Concepts
 “Job Description” and “Key Performance Indicator”
 “SMART”
 Survey of Performance Appraisals
 Distribution of Sampling (By Country, Department and Designation)
 Methodology
 Observations
 Transitioning from “Job Descriptions” to “KPIs”
2
 OVERVIEW OF PROJECT

 Survey the performance appraisals of 20 ERIKS APAC employees (across

the three countries, departments and designations)

 Examine whether the employees’ KPIs are “SMART”

 Propose ways to make the employees’ KPIs more aligned with the “SMART”
criteria

3
 DRIVING WITHOUT A DESTINATION

4
 DRIVING WITHOUT A DESTINATION

An employee without “SMART” KPIs is like a driver

without a destination.

They may get to the right place by accident,

but they are more likely to stray off-track along the way.

5
 “JOB DESCRIPTION” AND “KEY PERFORMANCE INDICATORS”

• Task / Responsibility • Measurable Outcome(s)

linked to the Task
• Typically Qualitative or
Event-Based • Typically Quantitative

• E.g. “Source, negotiate • E.g. “X% Reduction in

and purchase materials Vendor Y’s prices compared
from vendors” to the previous year”
6
 WHAT GETS MEASURED GETS DONE
7
 “SMART”

Specific
• Is it precise and clear? E.g. Amount of sales, Cost of materials
• *** Reduces confusion, and enables performance to be tracked ***

Measurable
• Is it possible to measure whether the goal has been achieved? E.g. Dollar value
• *** Enables objective and fact-based management ***

Achievable
• Is it realistic within operational constraints? Negative example – “10x sales compared to last
year”
• *** Motivates employees to work hard without demoralizing them ***
Relevant
• Is it aligned to the company’s objectives? E.g. Revenue growth, Cost reduction
• *** Focuses employees on actions and projects that matter and that make a difference ***

Time-Bound
• Is there a clear deadline? E.g. By 31 December 2019, Per quarter
• *** Creates accountability ***

8
 CONCEPTS - SUMMARY

 A “Job Description” turns into a “KPI” when it is “Specific” and

“Measurable”.
 Whether the KPI is a good / useful KPI depends on whether it is also
“Achievable”, “Relevant” and “Time-Bound”. Otherwise you may end
up with this scenario:

9
 SURVEY OF PERFORMANCE APPRAISALS –
DISTRIBUTION OF SAMPLING
DISTRIBUTION BY COUNTRY DISTRIBUTION BY DEPARTMENT DISTRIBUTION BY DESIGNATION
EPL 8 Finance, Legal, IT 2 Managers and 3
and Compliance Above
ESB 6 Human Resource 2 Executive 12
(HR), Marketing,
Office
ESH 6 Sales (External) OR 7 Non-Executive 5
Key Account OR
Business
Development -
<Project>
Sales (Internal) OR 5
Project, QA, QC
Warehouse, 2
Production,
Operation
Supply Chain OR 2
On-Site, Technical,
Product
TOTAL 20 TOTAL 20 TOTAL 20

* Department and Designation labels are based on the ERIKS APAC Standard Designation Guideline

10
 SAMPLE PERFORMANCE APPRAISAL FORM

For the purpose of

the survey, each of
these is considered
to be one “line item”.

11
 METHODOLOGY

 For each “line item”, label it as a “Job Description” or a “KPI”

 If it is a “KPI”, examine whether it meets the “SMART” criteria

 “Achievable” was not examined as it depends on the specific job
domain, benchmarks and resource constraints for that position

KPIs

Job Description

12
 METHODOLOGY

 Select two “line items” for each employee

 If it is a “Job Description” – Propose a “KPI” based on the task outlined in the
Job Description
 If it is a “KPI” – Propose a refinement to make it more aligned with the
“SMART” criteria
Original Revised
Achieve sales budget Sales target in 20YY - S$[W] in Q1, S$[X] in Q2, S$[Y] in Q3 and S$[Z] in Q4
– S$2.5 mil
Ensure smooth cycle Collection Effectiveness Index of at least [X]% by the end of the year
for A/R matters
"Collection Effectiveness Index" means:
[Total receivables at the start of the year + Average monthly credit sales during the year - Total
receivables at the end of the year]
divided by
[Total receivables at the start of the year + Average monthly credit sales during the year - Current
receivables at the end of the year]

13
 EXAMPLES OF PROPOSED REVISED KPIS

Original Line Item Revised

Internal Sales Sales quotations generated in a
clear and accurate manner
within target deadline, at the
same time make sure
commercially and technically
meet customer expectation
Average time between receipt
of initial inquiry from the
customer and issuance of the
final quotation to the customer -
Less than [X] hours

Warehouse Warehouse picking and packing Average time between receipt

of packing instruction and
completion of packing - Less
than [X] hours

14
 EXAMPLES OF PROPOSED REVISED KPIS

Original Line Item Proposed KPI

QC Able to inspect urgent and large Average inspection time - Less
shipments / incoming goods at than [X] minutes per batch
short period of time and meet
deadline Customer rejection rate for
goods delivered - Less than [Y]
% of total value per quarter
Technical / Product Conduct at least 3 times of Sales increase of [A]% within [B]
training to ESB and EPL on months after training; or
sealing and polymer tech
[W]% reduction in quality defects
within [X] months after training; or

[Y]% reduction in Procurement's

product sourcing time within [Z]
months after training

15
 EXAMPLES OF PROPOSED REVISED KPIS

Original Line Item Proposed KPI

Finance Submission of information to Number of reclassified
auditor / tax for preparation and accounting entries = Less than
finalization of audit / tax pack [X] per month

Marketing Through the customer visits and Generate at least [X] qualified
communicate with sales to think leads at an acquisition cost of
about how to improve the not more than $[Y] per lead
marketing activities
("Qualified leads" means a
prospective customer in [X]
industry and with at least [Y] in
annual revenue)

16
 KEY RESULTS - STATISTICS

 No. of Line Items

 Total Number – 96 (across 20 employees)
 Average Number – 4.8 per employee
 Range – 2 to 10

 No. of “Job Descriptions” and “KPIs”

 Total Number of “Job Descriptions” – 67 (69.8% of the total)
 Total Number of “KPIs” – 29 (30.2% of the total)

 No. of Employees with at least one “KPI”

 No. of Sales employees – 7 (100% of the sampled Sales employees)
 No. of Non-Sales employees – 2 (15% of the sampled Non-Sales employees)

17
 OBSERVATIONS

 Other than Sales teams, a substantial majority of the ERIKS APAC employees are
appraised on the basis of “Job Description” rather than “KPI”.

 I.e. the basis of appraisal is not “Specific” and/or not “Measurable”, and is
therefore not a “KPI”, let alone “SMART”.

 An educational and transitioning process will be required to progress the

organization towards “KPI”-based thinking and alignment with “SMART”.

18
 TRANSITIONING FROM “JOB DESCRIPTIONS” TO “KPIS” -
TOPDOWN CASCADING MODEL
Step 1 (Already performed)
MT to identify core business objectives (e.g. revenue, market share, profitability,
customer satisfaction, etc)

Step 2 (Already performed)

MT and Department Heads to set up SMART KPIs for each core business objective
(e.g. company sales targets, NPS score, etc)

19
 TRANSITIONING FROM “JOB DESCRIPTIONS” TO “KPIS” -
TOPDOWN CASCADING MODEL
Step 3 (By the end of April 2019)
MT and Department Heads to discuss and agree on SMART KPIs for each
Department, which are aligned with and contribute towards the company-level KPIs

Step 4 (Beginning of May 2019)

Department Heads to share and communicate the Department-level SMART KPIs
with their respective team members

Step 5 (Middle of May 2019)

Seminar on SMART KPIs for all employees, to generate awareness and build
consensus

20
 TRANSITIONING FROM “JOB DESCRIPTIONS” TO “KPIS” -
TOPDOWN CASCADING MODEL
Step 6 (End of May to the Beginning of June)
Department Heads to consult with their team members to discuss and set up SMART
KPIs for each team member, which is aligned with and contribute towards the
Department-level KPIs

Step 7 (Middle of June to End of June)

Department Heads to submit the proposed employee-level KPIs to the MT for review and
revision

Step 8 (By the beginning of 2019 H2)

Department Heads to share the finalized employee-level KPIs with their respective team
members and get their sign-offs on the KPIs

21
22
 Let’s make industry work better

23