The Peril of an Ill-Conceived KPI

The three lads are waiting. They’ve been chatting for the last week and have hatched a plan. Now to put it into action.

They tense as the plane taxis towards them, and anxiously wait for it to stop.

The first man pulls the conveyor belt up to the plane.

The second man runs up the belt and opens the cargo door. He throws the first bag onto the already moving belt.?

Down it trundles to the third man who grabs the bag, throws it onto the baggage cart, and drives off to the terminal as fast as his little electric cart will take him. The other two relax and wait at the plane.

After navigating the airport’s complex road system, the driver gets to the terminal and dumps the bag onto the baggage carousel.

He smiles to himself as it disappears into the terminal, before getting back into the cart and driving, unhurriedly, back to the plane, where he and his two mates unload the rest of the baggage.

They repeat the trick day after day and happily collect their “fast delivery” bonus at the end of the month.?

"Wtf?”, you ask?

I’d the same reaction when I first heard the story.?

Let me take you back to the start of the story to understand the why’s and wherefore’s.

The airport, if I recall correctly, was Heathrow, and they had a problem with the baggage area being over-crowded with passengers and creating a safety issue.?

Airport management decided the solution was to get the baggage handlers to work faster, so bags came through sooner, and the passengers cleared the baggage hall more quickly.

The issue then became how to incentivise the baggage handlers. The “obvious” answer was to pay them a bonus for getting the bags onto the belts within a set time.?

Ideally, this was the time between the plane stopping and the last bag to arrive in the luggage hall. But they couldn’t measure that.?

What they could measure was the time the plane landed, and the time the baggage carousel started up with the first bag.

So, that’s what they did.

And the baggage handlers delivered exactly the outcomes they were being incentivised for.

The result: higher bonuses for the baggage handlers, increased costs for the airport, and longer waiting times for the bags to arrive and more over-crowding in the baggage hall.

This is a classic example of poor KPI and bonus design. It was well intentioned, but ill-conceived.

Now, it’s hard to know exactly what went on here, but I’d be willing to be they made the same common mistakes I see leaders make:?

• Assuming they know the true cause of the problem is (in this case, they seemed to have assumed that the baggage handlers working slowly was the core of the issue);
• Not involving the team in defining the problem and designing the solution
• Believing people need to be bonused to change their behaviours (which is true if you’re forcing them to implement something they don’t understand or disagree with)
• Taking the easy and obvious road without thinking through the unintended consequences of what might happen and how people could play the system to get the bonus (Old school builders used to keep a lazy man on their team, as they were guaranteed to find circumvent the solution and find the easiest way to do something!).?

How do you avoid similar mistakes in your business?

Here’s an eight-point process I use in my businesses and recommend to my clients:

1. Start by defining the problem and the outcome you want to achieve and why it’s important.?
2. Work with the team to challenge your thinking and define what’s causing the problem. Get as many perspectives as possible. Explore all the possible options that might be causing the problem, rather than just assuming what the issue is
3. Now you know the root causes, work with the people involved to explore all the possible ways to solve it.
4. Evaluate those options carefully with the team, to find the best one(s) to solve the problem
5. Think through all the possible unintended consequences. What could go wrong? How might someone gamify this? How might a lazy person shortcut this?
6. Get the team who created the solution to implement the solution. Their buy-in is greater, they’re committed to the solution, and they will want to see it work. They’ll have a stronger feeling of control and competence and will step up to fix problems with the solution and tweak and improve it
7. Design and choose metrics that relate directly to the outcome you want, rather than a loose proxy that’s easy to get.
8. Only consider tying a bonus to the metrics if you’re confident that hitting that number is directly within the person’s control and is the most important metric for them.?

Consistently applying that process will greatly reduce the risks of unintended consequences, help you develop better solutions, and deliver better outcomes, as well as building a more engaged and competent team.

If you want to understand why, then grab a copy of my book “The Business Exit Blueprint” and read the section on “The Craft of Leading".

Before I wrap up, let me share...

The real problem at Heathrow

Maybe it was poorly designed carousels. Maybe it was a poorly designed layout in the baggage area that caused pinch points and congestion. Maybe it was poor signage that left passengers confused about where to collect their bags and how to get out once they’d got them.?Maybe it was custom officers being over-zealous and causing a blockage at the exit. Or passport control operating at a different throughput pace to what was possible in the baggage area. Maybe the carousels moved too quickly or too slowly. Who knows?

Let’s assume, though, that it really was the baggage handlers not being fast enough. If true, then they should have measured the time between the plane arriving on stand to the last bag on the carousel. With the backup measure of how many passengers’ bags didn’t get onto the carousel and had to complain at the service desk.

Ultimately, tying the bonus to the delivery time was the real problem in this story. There are just too many variables outside the baggage-handlers’ control for it be an effective and useful approach.?

The luggage might be badly arranged before take-off and hard to unload. The plane could be on a stand far away from where it’s supposed to be. Traffic between the plane and the baggage area might be congested. The baggage offload area could be congested because two teams are unloading to the same conveyor belt.

Those variables make it hard for the team to consistently deliver. And unless they’re taken into consideration when calculating bonuses, the team will resent the scheme, see it as unfair, and be less and less motivated to deliver the outcomes you want.?

Wrap-up

Next time you face an issue in the business, don’t assume you know what it is, or how best to solve it.

Follow the 8-step process above to develop the best solution. You may end up with your initial solution and you might be tempted to think you’ve wasted time. But I guarantee the solution will have greater support from the team, be easier to implement, and you’ll be confident it is the best solution.

Want some help with your business?

I get invited in business owners who are working towards building a sellable asset but have the self-awareness and honesty to admit they need someone to guide them who’s been there and done it before.

Some say the business is quite dependent on them to run day to day and most of their time is spent working in the business rather than on the business; some are reaching retirement age and want to make sure they get the best exit they can; and some just feel stuck and know that they won’t get the exit they want if they don’t change thing.?

If that sounds like you, and you’re ready to fix it, there are two ways to get my help.?

1. Get a copy of my book “The Business Exit Blueprint” – it’s chock full of practical advice to help you grow a valuable, sellable, and sought-after business.
2. ?Get in touch for a chat about where you’re at now and what you’d like to achieve, and we can see how best to get you that [email protected]

Warmly,

Richard

?PS:? I promise you two things:

1)?If at any time between now and the day you die you believe for any reason (or no reason at all) what I share with you in "The Business Exit Blueprint"?isn't worth at least a thousand times what you paid to get it in your hands, just let me know and I'll ensure you get a full and courteous refund of DOUBLE the book price.

2)?If we chat, I promise I will never try to sell you anything unless you specifically ask me to