KPI: Killing Performance Indicator

Key performance indicators, or KPIs, are supposed to indicate how a company, division, team, or employee is performing and, above all, how effective you’re progressing in achieving your business goals. Yet, KPIs have morphed into something entirely different; they have become individual goals instead of performance indicators. As a result, rather than helping to enhance performance, they in fact seem to be eroding it.

A better name for KPIs is Killing Performance Indicators.

When I hear leaders talk about achieving KPIs, I cringe. This quest for the Holy Grail is often poorly conceived and misaligned—even unimportant. The objectives are frequently individualistic and loaded with unintended consequences, including employees working to specific targets at the expense of the quality or value of their work. What’s more, performance management has become a laborious process that is void of its original intent: improving performance.

In the 1990s, performance management was reshaped by the advent of self-assessment, coupled with feedback sessions with line managers. At the same time, the idea of bottom-up planning rose in popularity. This evolution in managing performance appeared to be natural, as workers wanted more independence in decision-making and managing work processes. Yet, as employees chose their own KPIs and self-assessed their performance, the rate of year-on-year productivity growth halved, dropping to all-time lows.

It’s time for a reality check: your performance management system is likely killing performance.

What started as the practice of measuring employee performance and organizational activity is now reduced to a set of goals used in calculating the bonus. But performance indicators differ from goals. We’ve lost the collective focus on the business’ goals and intense pursuit of productivity growth.

Ideally, organizational goals are reflected in individual goals and individual measures are aligned with organizational performance measures. Only they’re not. Employees work first for what’s in their best interest—their KPIs—when they should be working for the collective value of the company.

If you can’t make the connection between how each system, process, action and hour worked impacts the drivers of your balance sheet, eliminate the KPI in question. It’s killing your performance potential.

Every balance sheet has drivers. They are the collective point of performance and what the company does to make money. Every system, process, action and hour worked should be directed towards—and ideally impact—your balance sheet drivers. Crucially, they also are the backbone of productivity.

For example, a waste management company makes money every time it picks up the garbage. Meanwhile, a main driver of an airline’s balance sheet is passenger revenue per available seat mile, or PRASM. This is called the ‘unit revenue’. Similarly, for a hotel, the key driver is RevPar—revenue per available room. That is, how much money is spent per room in the hotel.

Every employee working in a hotel should be thinking about RevPar and working to improve it. That’s their ultimate performance criteria. Yet, when I asked the president of a hotel company if all his employees were thinking about RevPar, he laughed and said, “Do they even know what RevPar means?”

Can you imagine what their KPIs must be like? They could be pointing in random—even conflicting—directions, with each employee attempting to achieve what’s important for their departments, teams and self. If they aren’t all focused on RevPar, which is how the business makes money, then there is wasted performance all throughout the hotel.

What drives your balance sheet? Is every action performed and hour worked impacting it?

Contrary to what performance management theory says, if you want to increase your employees’ accountability where execution of organizational goals is concerned, focus them. Tell them what matters most.

Choosing the right KPIs relies upon understanding what is important to your company’s balance sheet drivers. Rather than giving employees the freedom to create bottom-up KPIs, the focus of your performance management should be directing them towards these drivers. Balance sheet drivers should be the goal and every performance indicator should directly relate.

Performance management should be an organizational navigational instrument, like a route on a map to a destination. Driving the balance sheet is the destination and the indicators show how you’re progressing on the journey towards it. If developed correctly, KPIs allow you to measure progress in real time to see if your business is on the right track, or not.

What gets measured gets done.  The question is, “Are you measuring what matters?”

Printed originally in Gulf News (10 April 17)

A thinker, speaker, and writer to the core, Dr. Tommy holds a doctorate in strategic leadership from Regent University, and is the founder of Emerging Markets Leadership Center (EMLC) where he is the region's leading CEO Coach. In addition to writing a number of books—including the Amazon #1 best-seller, Leadership Dubai Style and 10 Tips for Leading in the Middle East, Dr. Tommy is the editor-in-chief of Emerging Markets Business—The Authoritative Review.

Follow me on twitter @tommyweir or visit www.tommyweir.com for more of my thoughts on leadership.