Random Thoughts on KPIs

Targets! There is no escape from this word whether you are a layman or in the corporate world. Every individual and family has targets (a.k.a goals) to do or get something. In Indian culture, even achieving Nirvana is a goal.??

In the corporate world, people use the more sophisticated word - Key Performance Indicators (KPIs) instead of goals. It covers everything that can be measured - production, sales, EBIDTA, FCF, schedules, attrition, retention, reserves, pollution, etc. There used to be non-measurable ones, but as organisations evolved, most KPIs are now quantifiable and thus measurable.??

Generally, KPIs are arrived at after an elaborate exercise of brainstorming, mostly with inputs & insights from renowned management consultants. And typically, you will have short-term (annual) and long-term (multi-year) KPIs. The annual one is usually split into all possible combinations (half-yearly, quarterly, monthly, weekly, and daily). The best part (and worst) is that these KPIs greatly influence your increments, bonuses, and promotions.?

Organisations arrive at KPIs through two routes, bottom-up or top-down.?

• In a bottom-up approach, the team arrive at the numbers after taking stock of ground realities, past & current performance, constraints, etc. Generally, bottom-up numbers tend to be conservative. Since they are the people who battle it out day in and day out, and with the intent of not getting burnt out, the bottom-up KPIs are generally easily achievable ones. It is a fail-safe approach with the motto of “under promise & over achieve”. This way, even in a poor year, everyone is safe (there has to be an act of God or force-majeure event to miss the KPIs). And, if the year is perfect, everyone gets an excellent share of the spoils.?
• In a top-down approach, the senior executives with more external views, changing environments, markets etc., sit together and decide where they want the organisation to be in the coming year and the long run. The KPIs they set tend to be ambitious, stretched and challenging. In some cases, they might even decide to go for the broke. If you hit it, it is a jackpot; otherwise, it is the highway!?

Though there is no perfect world, mature leaders and organisations work on KPIs both ways and then find common ground. The KPIs are then realistic, taking cognisance of ground realities and aspirations. Good KPIs will always be ‘meaningfully’ stretched to give the organisation a positive tension, keep it on its toes and, finally, a great sense of satisfaction while achieving it. It is also a win-win situation in the?annual performance evaluation.?

However, under two circumstances, badly set KPIs can fail the organisation, leaving it worse off than before.?

• Easy targets generate complacency, and the organisation as a whole could end up like the rabbit of the rabbit & tortoise tale.?
• Outrageously stretched targets set by a top-driven approach will leave the organisation demoralised.?Some leaders?go by the maxim “to reach tree top, one needs to aim for the moon”. And to make it worse, everyone is penalised in the?performance evaluation?for not achieving it.? (If at all by any chance the team achieves even a single KPI,?toxic leaders?will feel miserable thinking that KPIs were easy and be rest assured that next year it will be “aim for Mars”!!) The most significant disadvantage of outrageous KPIs is that team won’t even make an effort to reach branches of the tree (forget the top), knowing that the game is lost even before it is begun.?

Mature leaders and evolved organisations know how much stretch the organisation can take without breaking its morale and where to set the needle between the bottom-up and top-down approaches.?

#management #mentoring #keyperformanceindicators #goals #targets #leadership