Key performance indicator

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The Devil’s Advocate
A middle manager’s big book of little concepts, yesterday

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Key performance indicator /kiː pəˈfɔːm(ə)ns ˈɪndɪkeɪtə/ (n.)

A metric. A box to tick. A second-order derivative used to explain a complicated concept to an administrator who has no background or hope of understanding it, so he can quantify it.

A KPI is the kind of audio-description soundtrack a quantity surveyor would compose to explain an art-house film to a blind accountant. KPIs will tell you everything formal, structural and legible about your business, but nothing important.

So, for a contracts negotiator, cast adrift upon an ocean of policies, playbooks, procedures, approval processes to reach agreement which achieves the firm’s trading objectives while protecting its exposure to its counterparties, key performance indicators will be not the quality of the agreed termination events nor the validity of the security package, much less the practicality of margining arrangements, the sensitivity of the NAV triggers or the robustness of the indemnity, but how many contracts she has completed and how quickly she managed it.

KPIs and the modernist way

As a quantified abstraction of an intractable activity, we can see key performance indicators as tools from the modernist playbook. “I do not understand this bizarre pantomime by which subject matter experts pass their time, so I will reduce it to it countable operations. I can understand those. I can count them.”

There is little fun in counting things that happen in ones and twos. It is much more fun to count in hundreds, thousands and millions: through that scale effect events become data. Data is cool. With data, one can then plot graphs, see trends, and construct models. But this very act of scaling one loses what is special about the expert’s input: the expertise. An expert will tell you that what she does is ineffable, hard to describe, and impossible to quantify. It is, in our argot, “informal”: it is insight, gut feel and experience. Metis. It is the choice of this word and not that. It is the side conversation: the subtle touch that seals the deal. You can see this up close; at 30,000 feet, it disappears. It will not show up in your KPIs.

KPIs as a weapon against modernism

Let us say someone has had the bright idea of commissioning a set of KPIs to measure the legal department’s contribution to the bottom line.

“I can see the future of inhouse legal” thought leader types will feel an adrenaline rush at the very mention. They stand in awe at the magic money tree that is modern commercial law practice, wonder why that doesn’t translate to inhouse legal, put two and two together, arrive at thirty seven and before you know it they will be drawing up plans to recast the legal department as a profit centre, with its own P&L.

Such individuals may need to be dashed in the face with water or slapped to bring themselves to their senses, but even if you do this, the germ of the idea will have germinated. Before you know it there will be a cross-functional working group, a project, on a “sprint”, tracking red.

Meanwhile, the legal eagles will flail. They will flounder. “But,” they will protest, too much, “we are not part of the operational stack. We don’t make widgets. We are special. We handle exceptions, crises, novelties and conundrums exactly the sorts of things that one can’t awfully well count. Things that we have not seen before and are unlikely to see again. Our value proposition is therefore hard to articulate, let alone quantify.” Seeing where the management layer are going with this, they quickly append: “But you know it when you see it. Our value is not a function of the things we have done, the time we have spent or the units we have produced. Our value is oblique. It does not always accrue immediately, or obviously, or with an observable consequence. Sometimes our value is in avoiding consequences.”

This seems self-serving, but it is true: a well-timed intervention may head off litigation. How do you value that careful meeting, against the 18 months’ of dispute resolution and litigation that was its alternative? Do you measure the value of nine months’ excellent work, however insightful or ineffable, on a deal that cratered? And how do you value the time your experts waste filling out their PowerPoints attesting to the performance of their key indicators?

It is a meaningless, modernist bumf. It suits only middle management, whom it gives something to do, someone to chase, someone to audit, an attestation to gather and a KPI to stick on the dashboard slide on the monthly about to the opco deck.

But all is not lost. With a deft inversion we can set the management layer against itself. For while it may be difficult to explain how an inhouse lawyer does add value, it is a cinch to show all the things he must do, but in doing which he does not. Lawyers are beset with boxes to tick, forms to fill, processes to follow, policies to comply with and administrative tasks to carry out designed exclusively to satisfy management’s compulsion for counting formal things.

These key non-performance indicators we can most certainly count. We can aggregate, extrapolate, model and graph them, in the certainty that every hour we spent on these formal attestations produced precisely nil value.

We could take it a step further, and set as our key performance indicator, the number of fatuous KNPIs we have identified and removed in a given period. We can set the system, for once, against its usual operation, whereby as time passes we accumulate the scar tissue, silt, rust — barnacles — from near-misses, operational errors, snafus and manual work-arounds contrived to keep the jalopy running because management won’t splash out on up-to-date IT infrastructure, and instead spend our time removing these layers of crud from the operation.

Well; a fellow can dream can’t he?

See also