Seeking Advice on Linking Department KPIs for a Better Performance Appraisal System in an MNC

Respected Team Members,

I am currently redesigning the performance appraisal process of an MNC with approximately 550 employees. Previously, the company assessed the KRAs without having KPIs. Now, given the challenging industry situation, the company aims to interlink the KPIs of all departments and quantify these KPIs.

I would like to request your guidance or input on this subject, particularly on how to interlink department KPIs.

Thank you in advance.

Dear Mahendra,

It appears that the cause of your post is fundamental misconceptions about the concepts of KPI, KRA, PMS, and so on. Anyway, paragraph-wise replies to your post are as below:

Redesigning the Performance Appraisal Process

I am currently redesigning the Performance Appraisal process of an MNC having approximately 550 employees. The company previously was assessing the KRAs and didn't have KPIs.

Reply: You cannot have only the KRAs and not KPIs. Each KRA has to originate from a KPI only. I request you to relearn both the concepts.

Interlinking KPIs Across Departments

Now, with the challenging situation within the industry, the company wants to interlink the KPIs of all departments and wants to quantify the KPIs.

Reply: When you add the SMART principle in KPIs, these become KRAs. Therefore, KRA = KPI + SMART Principle. Now coming to interlinking the KPIs of all the departments. The objective of setting the Performance Management System (PMS) is to institute various measures. Interlinking is not necessarily the objective. Yes, in some cases because of the nature of the work, the KPIs get interlinked. However, this process is natural and there is nothing to contrive.

May I request your guidance/inputs on the above subject? More on how to interlink department KPIs.

Reply: About interlinking the KPIs of the departments, the reply has been given above.

Final Comments

It appears that the system has been instituted in your company half-heartedly. You could have hired an external consultant. The essence of PMS lies in the measurement of the costs and ratios associated with each department and assigning these to the respective HODs. For example, the main KPI of the Purchase Department is "Inventory Turnover Ratio" (for the raw materials only), whereas for the sales department, it could be "Sales Cost" or "Cost per (incoming) PO."

I have been giving replies on the subject of PMS, KPIs, KRAs, and so on for years. You may click the following link to refer to one such reply: https://www.citehr.com/609486-guidan...ml#post2419083

In this link, there are several further links. Go through all the links patiently to get a conceptual clarity of the subject.

Thanks,
Dinesh Divekar

Dear Mr. Divekar,

Thank you for explaining the concepts in such an easy way. I do understand the difference between KRAs and KPIs; unfortunately, somewhere down the line in our company, it is more competency-based or rather general KRAs and not KPIs.

Example of KRAs in Our Company

To give you an example:

For purchase, the KRAs set are "Should have good negotiation skills." For sales, "The employee should have good presentation skills."

However, these are not measurable criteria.

Addressing Accountability and Team Success

Furthermore, there is no accountability for delays within the team, and there is always a blame game. Hence, we want to focus on addressing the issue in the best possible way, where the whole team will be accountable for success or failure.

Therefore, I requested the team to provide references or guidance in case they have any good practices.

Thanks,

Mahendra Tiwari