THE THING ABOUT KPI’s by S Chakraborty

Do you add salt to your soup before you taste it? How do you know the soup needs salt before tasting? Similarly, you don’t wear a life jacket in a ship unless there is the danger of the ship sinking.

In the same way, you just don’t fix KPI’s in your organisation, just because every company does so? I am surprised that KPI’s are more talked about than the crux of the matter – GOALS. The first act is to set SMART Goals and adhere to it. KPI’s are like life jackets to be used only if the indicator is necessary, whether the project is working or sinking.

Today, almost every company has fixed up KPI’s when in the first place their Goal setting and Goal setting process is not robust or even transparent. Remember – its Goals and measures first then, perhaps, KPI’s. Why complicate the whole process and add to the encumbrance?

I have as a Goal Setting expert seen too many companies proudly talking about KPI’s and CEO’s clucking about KPI’s, Kpi’s and kpi’s all the time. What about KPI’s?

Key Performance Indicators (KPIs) is one of those business topics that has been so widely written about and discussed in management and leadership circles that most people think “they have it covered”. And yet, like most familiar things, this familiarity can breed contempt – and this results in critical errors when it comes to implementing KPIs. Here are the 12 biggest KPI mistakes I have seen businesses and corporate repeatedly, make time and time again. Avoid them at all costs.

1.???Picking the Right KPI - The biggest challenge related to KPIs is picking the right one. Most organizations fall into the trap of letting best practices factor too highly in their selection of KPIs. Or they look to their business intelligence software, or a consultant to pick it for them.

?2.???Not linking KPIs to your strategy - KPIs are only really useful if they are aligned to your strategy and inform strategic decision making. Anything else is just window dressing. When KPIs are not linked to your strategy, you’re wasting huge amounts of time and money collecting information that is not going to benefit the business. No use going around in circles for the sake of doing something.

?KPIs are useful if they deliver mission-critical information that is relevant to your business. It follows, therefore, that once you know what you are trying to achieve in your business, you should use those objectives to help you select the relevant KPIs. Thus, no objectives/KRA’s – no KPI’s!

?3.???Measuring everything that is easy to measure - Unfortunately, there is often a disconnect between whether something can be measured and whether it should be measured. Therefore, one of the biggest mistakes that people make with KPIs is measuring everything that is easy to measure, regardless of its relevance to the business. Doing everything but not the right thing?

?4.???Measuring everything that walks and moves - There is always a temptation to measure everything that walks and moves – the assumption being that lots of information is better than no information. In fact, having too much information can be as useless as too little. And it can be downright damaging to the business, wasting time, money and attention that could be better spent elsewhere. Like a headless chicken?

?5.???Collecting the same measures as everyone else - Another big error people make is developing their KPIs by looking at what everyone else is measuring. One size does not fit all! So, a business leader may decide that KPIs are something he/she really needs to take seriously but, rather than work out what information he/she really needs, and finally end up with him/her looking at competitor’s business or perhaps discuss KPIs with other senior executives and gather a list of KPIs that everyone else is using.

?This can also happen, if a particular KPI or metric gains popularity in leadership journals. Just because everyone is talking about customer satisfaction surveys or employee engagement surveys doesn’t automatically mean you need those KPIs. Whether you invest in these types of measure will depend on your strategy and nothing else. What is important for your organisation?

?6.???Not separating strategic KPIs from other data - There is no shortage of data and information inside most businesses, ranging from financial and sales to customer and compliance data. However, the problem is that, too often, all the KPIs are lumped together in one long KPI report or indecipherable dashboard. Business leaders and decision makers are time-poor; they don’t like to to wade through pages and pages of KPIs to sieve out the really critical ones. As a result, the ones that could really direct strategy and inform decision making are lost in a sea of irrelevant information. Don’t cherry pick someone else’s strategy pick your own important strategic Goal.

?7.???Hardwiring KPIs to incentives - Linking KPIs to incentives (such as a bonus or pay rise) is really precarious in business because it so easily creates unintended consequences. The true purpose of a KPI is to help people inside the business know where they are in relation to where they want to be. Are sailing smoothly or about to sink? They, act like a compass on a sea voyage. But, once those KPIs are linked to incentives, they stop being a navigation tool and become a target an individual has to hit to secure their bonus. And, as soon as that happens, the individuals involved can become very creative in how they can manipulate the information or their behaviour to ensure they receive the incentive. Would you rather end up with individuals creatively designing their outcomes or the strategic Goals?

?8.???Not involving executives in KPI selection - This is important! Happens in most organisations. What I have been seeing in my work as a consultant with top senior executives is that they get excited about strategy and the big picture. Those that are interested in numbers (the finance director, for example) might be interested in designing specific KPIs, but most executives are not. As a result, senior executives work on the strategy but then delegate the process of identifying or designing the right KPIs to someone else. It’s the art of custom tailoring or bespoke result designing.

This is a serious mistake. Senior executives must be involved in the KPI decision-making process, otherwise they will not feel ownership of what is created. And if they don’t feel ownership of the KPIs, they won’t use them. It’s very important that the senior team think about the KPIs, engage with the questions they are seeking answers to and sign off the chosen KPIs. This ensures a clear, strong, understood connection between the strategy, the KPIs and the questions those KPIs will answer.

?9.???Not analyzing your KPIs to extract insights - Another common mistake with KPIs is that no one inside the business is really analyzing the data to extract business-relevant insights. No one is working out how the data relates to corporate or industry benchmarks, or how the metric has changed over time and what that might mean for the business.

?Again, this is often down to a disconnect between the decision makers and those who are doing the reporting. Often the analysis is done at lower levels of the organisation and reported to the top. Those lower down might not understand the relevance of the data; they might just be presenting it. And those at the top delegated the KPI design to others, so are not connected to the way the information is presented. It’s vital that someone at the right level looks at the data and deciphers what it all actually means for the business. Now, don’t give the right to analysis to the smart alec who know the best in excel.

?10. Not challenging and updating your KPIs - Is it Challenging enough? Once the right KPIs have been identified or designed, they are often never questioned or challenged in terms of whether they remain relevant, linked to strategy or continue to help the business answer critical questions. It is important to make sure that you are always collecting the right data, collecting it often enough and are using what you collect.

?This means you mustn’t be afraid to challenge your KPIs. If you don’t, KPIs can easily become a “tick box” exercise that allow managers to say they have them, rather than being a real-time navigation tool that leads to better outcomes and performance. Whenever there is a change in strategy or corporate priorities, you need to review and update your KPIs to make sure you only measure what really needs to be measured and that the KPIs remain relevant and aligned to the new strategy. You have the best tools and gadget in the ship but not the satnav or the sextant.

?11. Not acting on your KPIs - KPIs can shape strategy and inform fact-based decision making inside businesses – but only if those inside the business act on them. In the end, it doesn’t matter how brilliantly you’ve aligned your KPIs to your strategy, or even how brilliantly you have captured and presented the relevant KPIs, if they aren’t then used as they were intended. If you aren’t using your KPIs to inform your decisions and drive performance, then you are wasting your time and effort.

?A well-designed set of KPIs should provide a clear indication of current levels of performance and help your people make better decisions that bring the business closer to achieving its strategic objectives. If you use KPI’s then act on them like red flags.

?12. Focus performance improvement on root causes, not symptoms – This can be done by repeatedly asking the question “Why” you can peel away the layers of symptoms which can lead to the root cause of a problem. Very often the reason for a symptom will lead to another question. Although this technique is called “5 Whys,” less or more questions may be required to identify root cause. Go back to the Why!

By avoiding these 12 pitfalls, you can ensure your KPIs are designed, implemented and used exactly as they were intended – to help your company succeed.

So, the next time you hear your classmates or colleague’s cliché on KPI’s, you know what to do.