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Why most KPIs dont work and what to do about this

There are many companies where KPIs are treated as a necessary evil, one of the reasons is a poor implementation and
translation of KPIs to employees. Today is a good time to revise your KPIs. Hopefully this article will help to make a shift of
your business perception of KPIs from a necessary evil to a must-have
must business tool.

On the Internet there are a lot of 50+ KPIs

Is lists, X principles of winning KPIs, Y steps to measure something texts.
Today I want to come up with a sound approach for KPIs that will:

Help managers to use KPIs for business management,, not just for measurement
measurement;
Ensure that line-level
level employees buy
buy-into KPIs as a business tool.

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Business context of KPIs
Many authors hastily start with KPI design principles, such
as SMART. Id prefer to start with a KPIs business
context. Bad KPIs are detached from this context and as a
result are pointless. In the contrast, authors of winning
KPIs start with an analysiss of the business context, thus
making their KPIs successful as a business tool.
Alignment with business
objectives
As the biggest challenge I would name an alignment of a
KPI with a business objective.
bjective. Companies like measuring
something just because they can, or because it is a
general business practice. As a result their KPIs are not
helping a business, they are just consuming resources
necessary to manage them and update their values.
Each KPII should be aligned with a specific
business objective.
This alignment should answer a why question for a KPI.
Why does this KPI exist in this very company?
According to the practical usage, there are two functions
that typically are associated with a KPI:
Monitoring of the performance
Measuring of the progress
A typical business tool that monitors business
performance is a dashboard, while a scorecard is focused
on measuring the progress.
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The business context of any KPI is formed by:
Business Objectives
Action Plans
Team
Lets have a look at these connections and see how they
might help us to convert a KPI from a measurement tool
that employees disparage to a management tool that
employees will buy into.
In the case of monitoring an example of an alignment
might look like this:
KPI: Number of deals closed today -> Function:
monitoring ->
> Business objective: Monitor a level of deals
closed. Invest in additional marketing efforts if the
number of deals closed is getting low.
In the case of progress measurement an example of
alignment is:
KPI: Number of leads per month -> Function:
measuring
ring the progress -> Business objective: Ensure the
growth of the number of deals closed by 30% during the
next 6 months.
We dont have an answer for a how question that is
supposed to be provided in an action plan. What we have
by now is an objective and a KPI. A KPI plays a role of a
progress tracking and/or performance monitoring tool for
an objective.
As long as each KPI is aligned with a business objective
we can conclude that the number of KPIs should
correspond to the number of business objectives. Im not
saying that the rule is as simple as the number of KPIs =
the number of objectives, but general practice is that
huge lists of KPIs are useless as KPIs there are not
associated with a specific business objective.
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For the same reason it doesnt make sense to inherit
KPIs from some other company or just take it from a
list. Your business is unique, your strategy is unique; it
doesnt make any sense taking KPIs of another company
unless you want to copy their strategy.
Action Plan
An action plan should be aligned with a business objective
and a KPI as well.
In a case of monitoring of the business
performance a business objective might be to ensure that
its KPI is in the green zone and react appropriately when
it goes in the red.
When a business
ess objective is focused on achieving
something, a KPI will measure the progress towards the
goal. An action plan in this case includes all the steps
necessary to achieve a specified objective.
What if there is no specific action plan associated with
a KPI?? Well, if you measure it then there is supposed to
be something, otherwise why do you measure it? When
management fails to formulate an action plan for a
specific business objective, and then I would recommend
adding the steps necessary to research the problem
pr into
an action plan.
For example:: Bounce Rate is one of many KPIs
that Google Analytic gives for a website. You already have
it in your Google Analytics dashboard, but it doesnt mean
that you know what to do about it. It looks like this might
be an indicator of the websites quality, so an action plan
in this case will actually be a research plan to find out
how one can manage a bounce rate.
Team
KPIs wont execute your business strategy; your team will
do this. Talking about a team, there are some typical
problems:
The KPI need to be properly translated to a team
Team should buy into a usage of a specific KPI
If a team dont think that KPI is relevant or is used
appropriately then they wont work with this KPI, KPI or in
a worst case scenario, they will start making everything
possible (nott necessary relevant to a strategy)to keep a
KPI in a green zone, e.g. they will start gaming a KPI.
KPI
Basic tactics to prevent these problems are:
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Translate a KPI to your team by explaining to
employees a why aspect, e.g. how a KPI is aligned with
a specific
ific business objective, how that business objective
helps to execute a companys strategy.
Avoid using reward KPIs or linking any type of
compensation to a KPI.
Cultivate in your company a tolerant culture that
will treat red-zone
zone KPIs as opportunities.
Assign a responsible employee for a specific
KPI. The person should be responsible not just for filling
in data each month, but for ensuring that an action plan
is executed.
Involve your tea
team in KPI design.
A basic self-check question: does your KPI report raw
data or valuable information? Obviously the difference is
in the context. If KPI is aligned with a business objective
then it will report information that will generate business
insightss and help with executing of an action plan.
KPIs Best Practices
We have talked about the business context of the KPI and
hopefully now you start seeing KPIs from a different point
of view. Not just a quantified representation of
something, but a measurement
measureme tool that interconnects
with its business environment. Now all of the standard
KPI rules will sound a little bit different and, hopefully, will
make more sense.
Focus on results, not on the process
KPI is aligned with a business objective, not with a
business process. Thats why KPIs focused on results
work better than KPIs focused on the process. KPIs
focused on the results are harder to game; those KPIs
dont just give you a raw data, but information
informati about the
success level.
Compare:
Objective: Close deals, process: Call prospects
Process oriented KPI: The number of calls made
Result oriented KPI: The number of closed deals
In some cases it is difficult to come up with a good result-
oriented KPI.. In this case we can start with Critical
Success Factors (CSF).
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Attributes of a KPI
In the Team paragraph we were talking about
translating of a KPI to your team. Employees need to buy
into a specific KPI, otherwise they wont use it. Give your
employee a clear picture about a KPI and they will be
happy to use it. Make sure that the KPI
PI that you suggest
has these attributes:
Name of KPI, preferably short and descriptive. If
necessary add additional information about a KPI in a
description.
KPI is measurable. It is easy to measure it;
there is a step-by-step
step instruction about how to do this,
that unambiguously defines the way to measure its
value. Do you use some quantified values? Do you
conduct a survey?
Focused value. Avoid
using aggregated values. Something like financial
success index for a business unit or turnover
turno rate in HR.
Instead of measuring the aggregated value, find out what
a part that actually matters for your business. Dont
measure turnover rate for all employees, try to minimize
turnover rate of high performing talents.
Alignment. It is aligned with a specific business
objective and action plan.
Responsible employee. As mentioned in Team
section, there should be an employee responsible for this
KPI.
Update interval. How often does a KPI value
need to be updated? How often a KPIs attributes need to
be revised?
Data input. Define how the data is inputted in
KPI. If a responsible employee is the one who will do
that? Is the data updated automatically from a database
or an Excel file?
Target value and finish date. What you want to
achieve is a specific target value, specify the estimated
final date. This applies in case of progress tracking. In a
case of performance monitoring the objective is to keep a
KPI in a green zone and obviously no finish date value is
used.
Visualization. People believe in what they can
see. Choose an appropriate means to visualize your KPI
on a dashboard or on a strategy map.
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Automation software
There is an opinion that one doesnt need an automation
autom
software for KPIs, because of all KPIs can be listed in an
Excel spreadsheet that will work fine for any company.
Thats makes sense if you have a list of KPIs that are not
aligned with business objectives. You might argue that a
business objective is
s just another column next to the KPI
name. Thats makes sense too and will work for small
projects.
The problem appears when it is necessary to create a
strategy map where business objectives are linked by
cause-and-effect
effect connections and it is necessary to
visualize important data about objectives and KPIs. When
your project grows you will definitely need some sort of
automation software. Check out how BSC Designer can
help in term of KPIs.
A sound approach for better
KPIs
Let me summarize all the ideas analyzed above. If you
read articles in the same way like most busy business
people do, then scan my arguments above to make sure
you catch the main ideas.
1. Start KPI design with a business context, not
with a KPI. Define what your business objective is.
2. Do you have an action plan? What are you going
to do to achieve a specified business objective?
3. Define a KPI;; it can be a KPI for monitoring of
the performance or for the tracking of the progress.
Choose a KPI according to your business context; dont
copy a KPI from others.
4. Translate your KPI to a team. Explain the
context, avoid reward KPIs. Involve your team in KPI
design.
5. Choose a proper KPI automation
and visualization tool..
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