If Oils Ain’t Oils then KPIs ain’t KPIs either

There’s something you gotta get straight about KPIs!

KPIs are like fire: they are very powerful, but if you don’t use them carefully they will burn you and your organisation.    An honest look at the use of KPIs in practice leads to a number of pragmatic suggestions which can vastly improve the positive impact of these powerful creatures and avoid their many pitfalls.

What are they for again?

 KPIs are for a great many things:

  1. To provide an incentive to staff to strive a little more (employee incentive)
  2. To send a signal to staff about what goals the executive would like achieved (communicating staff direction)
  3. To allow executives to see if their staff need to be paid a bonus (remuneration calculation)
  4. To help align staff action to organisational goals (staff alignment) and to each other
  5. To efficiently monitor progress on how the business is progressing (monitor business performance)
  6. To quickly identify any issues that need addressing (problem identification) and how big those issues are (problem assessment)
  7. To allow comparison to benchmarks (either compared to the past, other parts of the organisation, other organisations or some gold standard ) to determine remaining potential (benchmarking)
  8. To communicate to external stakeholders what the organisation intends to focus upon (stakeholder communication re intent)
  9. To tell external stakeholders how the business is performing (stakeholder communication re performance)
  10. To assess the current state of the environment that impacts on the performance of the organisation

The big problem is normally we start unconsciously creating KPIs for one or two of these purposes. More often than not, though, our KPIs end up getting (ab-)used  for the other purposes as well. 

For instance, KPIs that are focussed on aligning staff may be subtly different to the ones that are meant to stretch them.    An “align staff” KPI target does not need to be achievable, just able to be understood to help staff understand the direction management intends for them to progress.  This could be an impossible target like “No imperfections in any final product”.   However a stretch KPI may be very difficult to achieve but is still possible: e.g. “no less than 6 sigma quality across the year”.  If the intent of management is to convey a focus on product quality then a “No imperfections in any final product” KPI target is very useful.  Just make sure that bonuses are not tied to achieving it.

Some measures are very useful for monitoring the performance of a business, but are not actually intended to change behaviour in any way.  For instance, one may monitor employee churn rates to ensure that they are not increasing or decreasing.  If they are decreasing it could signal that  employees are feeling job insecurity or that the staff pool is not valued in the external labour market.  If it’s increasing it could be because of better job opportunities elsewhere, or an ageing workforce that is increasingly retiring, or poor supervisory practices.  Essentially these kinds of KPIs may be a watch and see type: Changes warrant attention but no one is trying to “hit a number”.  Such KPIs tend to be underutilised because there’s no stretch aspect to them. So the confusion is that it can’t be a KPI because it can’t be used to incentivise or stretch a team or staff member.  But the KPI is useful because it will help monitor business performance and also identify issues that require business action. 

The Take Away

The key is to overtly label each KPI based on its raison d’être.  If a KPI is for business monitoring and not for remuneration…label it so.  Contact me for a useful KPI purpose assessment tool that can assist with this process.

Next week we’ll look at how KPIs tied to incentives can sometimes have unintended consequences.