Why are key performance indicators (KPI) essential?

Throughout the XXth and XXIst centuries, capitalist companies were gradually led to use performance indicators and this in accordance with what was taught in the major American Business Schools. These indicators can be very different: number of customers, turnover, delivery times, return on investment rate, market share, percentage of satisfied consumers, etc. These indicators validate the chosen strategy and anticipate market trends. As Peter Drucker (one of the American management gurus) said, “You can’t direct what you can’t measure.”

These indicators are necessary to prevent organizations (especially large ones) from being subject to centripetal forces (where employees have no common objectives and end up engaging in contradictory actions).

The good management of companies is now linked to compliance with a large number of indicators that serve as a guide for managers. A good ? boss ? is one who knows how to highlight and enforce indicators that serve as a reference for all.

Nevertheless, several dangers should be avoided:

-?If incorrectly selected, indicators may contradict each other;

-?The indicators should not make us forget that an enterprise is composed of human beings (risk of de-humanizing working relationships);

-?Managers should not only deal with these indicators but should also forget to manage their company;

-?Some indicators are biased, such as the rate of return on invested capital (one way to improve this indicator is to invest less).

It is therefore important that a performance indicator is known to everyone, unambiguous, measurable and that the stated objectives (thresholds to be reached) are realistic.

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To read

P. Drucker, People and Performance. The Best of Peter Drucker on Management, Harper's, 1977.

B. Frey, “The cost price of incentives: an empirical analysis of motivation of crowding-out ”, American Economic Review, vol. 97, pp. 746-755, 1997.