KPIs Are For Machines, Not Humans

Introduction

Attend any management meeting or conference and you’ll invariably come across KPIs or Key Performance Indicators. KPIs started to dominate the business landscape back in the 1990s and became an entrenched and critical component of business operations ever since. Espoused by influential management gurus like Peter Drucker and Robert Kaplan, KPIs made their way into project management and have been applied quite successfully in managing project cost reductions, delivery timelines, and team churn rates. Examples of KPIs used in project management include planned vs actual hours, resource utilization, budget variance, and number of errors. All these KPIs and many others, however, have fallen short in improving one key metric: productivity - essentially, doing more with less. In recent years, despite technological advances that should have magnified productivity, we have instead seen a steady decline in productivity growth, starting in the 1970s and becoming more acute after the 2008-9 financial crisis. In the same time period, we have witnessed a sharp increase in income inequality and CEO pay disparity.?

As workers continue to see their productivity gains misapplied, they grow increasingly weary and spiteful of this disparity, until total productivity starts to decline

To explain this seemingly contradictory trend, one could argue that productivity gains were not lost but simply transferred to the top, a kind of law of conservation of productivity. However, this apparent preservation of productivity, unlike its equivalent in physics, cannot hold indefinitely. As workers continue to see their productivity gains misapplied, they grow increasingly weary and spiteful of this disparity, until total productivity starts to decline, which is what we have been observing for the last 10 years. Trends such as “quiet quitting” or “rage applying” are manifestations of this mismanagement of productivity gains and suggest a subdued rebellion exists against the status quo. It is increasingly clear that automation and traditional KPIs are insufficient to drive future productivity growth, and in fact, may be exacerbating the situation further.

Trends such as “quiet quitting” or “rage applying” are manifestations of this mismanagement of productivity gains and suggest a subdued rebellion exists against the status quo.

PMOs, however, continue to see technology as a savior, pushing for more automation in the face of low employee morale and customer engagement. Since KPIs measure operational efficiency and not human contentment, this push only serves to further alienate staff and customers from the business. In the past 10 years, I have employed a new management framework that incorporates a different set of metrics, called KCIs and KFIs, to dramatically increase productivity and employee/customer satisfaction. This framework relies on a quantified version of empathy and reciprocity to allow project and product managers to measure human neurodiversity, authenticity, sacrifice, and cohesion, which are the critical success factors (CSFs) driving productivity growth in the 21st century.

What makes me qualified to present such a framework, you may ask? Having been in the IT industry for over 25 years (and the Education industry for over 20) and wearing many hats from developer to project and product manager all the way up to CTO and board member, I’ve seen my fair share of productivity mishaps and how traditional approaches generally fail to address them. In the past 10 years, I have been a CTO at two different companies, one in the BFSI vertical and the other in Education. Despite the differences, I implemented my framework to great success, completing 12 projects with my team in 18 months at the first company, resulting in a transformational change in that company’s financial performance (over 400% increase in gross revenues) with zero churn during the time I was there. At the second company, my team and I built a greenfield Training Management System for live training that won several international awards. Again, during that time, we experienced heightened productivity and zero churn. High productivity was achieved in both companies using small team sizes. The benefits to project managers employing this framework are almost immediately discernible:

1. Higher productivity - Smaller team sizes (doing more with less)
2. Higher morale? - Greater authenticity and sacrifice
3. Higher innovation - Greater neurodiversity?
4. Lower churn - Greater cohesion

I observed that empathy and reciprocity meaningfully surface neurodiversity, authenticity, sacrifice, and cohesion in advancing innovation and minimizing churn, and policies that hinder the free expression of empathy and reciprocity are counterproductive to company financial and retention goals.?

New Model For Business

This new model of business eliminates competition between (hu)man and machine that has prevailed since the dawn of the industrial age and supplants it with metrics that are unique to each type of contributor to business success. In this model, there are three types of contributors:

1. Growth - responsible for the top-line growth of the business. Focused on customer growth and increasing innovation.
2. Operations - responsible for producing products and services. This should be as automated as possible and continue towards more automation. KPIs would live here.
3. Support - responsible for the bottom line of the business. Focused on customer support and reducing churn.

As alluded to earlier, this model relies on empathy and reciprocity being incorporated into the business itself as objective metrics and elevating the importance and relevance of qualia to customer growth and support overall. Currently, qualia are relegated to customer feedback and testimonials which are not measured or even considered in the evaluation of an employee’s remuneration package. Instead, they are simply evaluated as a pass/fail mechanism with a stick approach to failures. For example, a job candidate who was noted by their colleagues for exceptional neurodiversity and sacrifice would not be treated any differently than another job candidate missing such attributes. Both would be evaluated solely on their experience and skillsets alone.??

Before we can start quantifying empathy and reciprocity, we must first define them explicitly and scientifically. This is rarely a pursuit undertaken by economists, knowledge workers, or MBA students but is obviously necessary for us to proceed to the measurement problem. Empathy is often defined as the ability to understand and share the feelings of others. There are in fact three different types of empathy:

1. Cognitive - understanding what a person is thinking
2. Emotional - understanding what a person is feeling
3. Compassionate - Cognitive and Emotional + taking action

Compassion extends cognitive and emotional empathy to include action. It is therefore the highest or most valuable form of empathy. This will be significant later when we quantify the different types of empathy.?

Reciprocity or fairness is fundamentally a peacemaking mechanism and involves sacrificing an individual reward for the benefit of the overall group, or sharing in rewards as equally as possible. It occurs as a consequence of having sufficient empathy. A lack of sufficient empathy, in other words, leads to low fairness, in the workplace or in society in general. Thus, reciprocity is a function of empathy:

Reciprocity = f(empathy) = f(cognitive, emotional, taking action)

Based on the above formulation, we can say that reciprocity is maximal when action is actually taken, rather than simply offering to understand. Further, both cognitive and emotional empathy must be present for action to even arise and thus for reciprocity to manifest. Finally, it is the content of the action and the perception of the other parties involved that determines the value of reciprocity. For example, if I sacrifice some of my time after work to assist a coworker in their task, and that task is perceived as being critical, then that reciprocity is worth a lot more than if I had sacrificed time during work for a task that is not as critical. In other words, the former requires a greater sacrifice than the latter, and may be more difficult (higher neurodiversity).

Examples and Anti-patterns of Empathy

In a 2018 Forbes article, Google’s Chade Meng Chan was featured for pioneering an internal program available to all employees which aimed to improve their overall happiness. Although not a formal framework, the program nevertheless resulted in an appreciable increase in sales and productivity numbers, clearly establishing a link between employee disposition and productivity.?

Examples of reciprocity/fairness can be seen in companies such as Gravity Payments and Zappos. At Gravity Payments, the CEO, Dan Price, set the minimum wage at $70k. As a result, revenue and profit doubled and retention rates and customer demand increased. At Zappos, the CEO, Tony Hsieh, radicalized the company’s customer service and interaction policies to increase customer sales and retention as well as make employees happier.?

Along with positive examples of empathy/reciprocity, there are anti-patterns as well:

1. Employee of the Month - we should reward groups, not individuals? - neurodiversity
2. Recognition vs Actual monetary award - respect is nice, but money is better - sacrifice?
3. Forced motivation or participation - people want authenticity, not coercion
4. Lack of pay transparency - transparency increases trust which aids in group cohesion

Quantifying Empathy and Reciprocity

We can define two new metrics to sit alongside KPIs, namely KCIs and KFIs.?

1. KCIs - Key Caring Indicators. KCIs measure instances of cognitive, emotional, and compassionate empathy. Compassionate empathy would be awarded a greater score than the other two since it takes into account action. Instances would be reported by both parties (provider and recipient) and a matching algorithm would determine the overall score for each instance. For example, cognitive empathy could get a score of 2, emotional 3, and compassionate 7.?
2. KFIs - Key Fairness Indicators. KFIs measure instances of fairness/reciprocity. As mentioned above, reciprocity is a function of empathy, and thus instances of fairness would amount to actual actions taken that demonstrate empathy, particularly compassionate empathy. Providing fair deals and compensation to customers and employees is an example. So acts of compassionate fairness would accrue a score of 11, whereas acts of cognitive or emotional fairness would accrue 9. KFIs are inherently more valuable to accrue than KCIs.?

Reporting KCIs and KFIs

KCIs and KFIs can be incorporated into HRM practices/software where parties report instances and actions taken, if any, to improve the CSFs mentioned above. One approach is a balanced scorecard that keeps track of these instances on a quarterly basis which can then be used in a team performance appraisal. Teams that score highly in their scorecards would be rewarded financially and recognized by the company.?

Examples of KCIs and KFIs:

1. A new team member records that a coworker was kind and considerate during onboarding and assisting with a particular software system?

Type: Emotional empathy, Score: 3, Parties involved: new team member name, coworker name, Date, etc, CSF contribution: A score of 1-5 for each: neurodiversity: 2, authenticity: 3, sacrifice: 2, and cohesion: 4

2. A team member records that they helped a customer above and beyond the normal call of duty and provided a full replacement for a defective product as well as credit in the store

Type: Reciprocity, Score: 11, Parties involved: team member name, customer name, Date, etc., CSF contribution: A score of 1-5 for each: neurodiversity: 2, authenticity: 4, sacrifice: 3, and cohesion: 3

It is important to note that both parties must sign off on each incident.?

The instance scores would accrue to a total that would be evaluated at the performance appraisal. Ditto for the CSF scores.?

For example, for the two incidents above, the totals would be:

Incident Score Total:? 14

Neurodiversity: 4, Authenticity: 7, Sacrifice: 5, Cohesion: 7

Assuming the trend continued in this case, we would say the team member is a genuine and socially adept individual. Those with higher neurodiversity scores would be described as being more innovative/creative, and finally those with higher sacrifice scores would be described as being more compassionate and giving of themselves.?

The admixture of these traits in teams should be balanced such that no team is lacking significantly in any CSF. Finally, although individuals can be recognized and rewarded internally within teams which could be used in remuneration evaluation, the company would only reward teams as a whole who maintain a healthy admixture and scores.?

Conclusion

The advent of cognitive automation has spurred the need for a new framework for humans and machines to mutually interact without sacrificing employability and benefits. This new framework accepts that humans excel in interactive activities that drive growth and support of the customer base whereas machines excel at automating tasks and increasing operational efficiency and overall productivity. Operational metrics are KPI-driven, whereas interactive activities are KCI and KFI-driven, rewarding humans for improving the qualia of the interactions between customers and the business as well as within the business itself. These metrics are quantifiable through incident recording, and can be tied to specific instances of cognitive, emotional and compassionate exchanges within teams or across customer engagement. The malaise we are currently witnessing in the workplace and productivity declines can be explained by a lack of measurement of empathy and reciprocity, which would have identified the issue in the first place and allow for it to be addressed - you can’t manage what you can’t measure!

References

1. https://www.researchgate.net/publication/353515682_System_of_key_performance_indicators_as_a_method_for_executive_decision-making
2. https://www.businessnewsdaily.com/10634-peter-drucker-management-theory.html
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4. https://www.cbpp.org/research/poverty-and-inequality/a-guide-to-statistics-on-historical-trends-in-income-inequality
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