The Trouble with KPIs
KPIs can cause a great deal of friction for companies and their teams. Numbers are being asked of people that don’t seem to make much sense because KPIs often don’t align with overall goals, resulting in Key Performance indicator that encourage behaviour inconsistent with what the organization is trying to accomplish. Often KPIs are poorly chosen and misused, producing numbers that no one understands or that aren’t very useful. They only tell you how we did, but, not why.
For KPIs to be valuable they should be actionable metrics that immediately inform how things are progressing and what activities need correcting to improve performance measurement. KPIs should require little or no interpretation. When properly set up, KPIs deliver exceptional insight into how the business is performing and what to do to affect change. If the KPI is not being met, you should immediately know what to do differently. That’s because it is only tracking one very specific action or activity.
Setting personal, departmental or corporate goals is fundamental to most people, but measuring how we perform against them is not enough. Make sure you identify the actions or activities that align to the overall goal. It’s certainly useful to know if Revenue or Profit is changing. But it’s better to figure out why and what’s influencing it. So, drill down to determine what actions or activities are needed to reach your goal. And visualize that.
Select KPIs based on your goals, not what others are doing
Don’t fall into the trap of picking your KPIs because those are the ones used by others or on someone’s top 10 KPI list. KPIs need to be consistent with your particular needs and always driven by your unique business goals. What works for one organization may not work for yours. The factors impacting their performance may or may not apply in your situation. Determine what your activities should be by starting with your organization’s goals and drill down from there.
The logic of decision making
When used correctly, KPIs are an integral part of a strategic business plan. KPIs are determined by stating an organizational goal and working down through several layers of increasing detail to figure out what needs to get done. When targets are met, so will the goal.
“A mere 7% of employees today fully understand their company’s business strategies and what’s expected of them in order to help achieve company goals,” according to Harvard professors and co-authors Robert Kaplan and David Norton. By establishing KPIs that align with corporate goals, all team members feel more engaged because they can see how their work affects the bottom line.
Creating KPIs in a logical structured way helps identify what to measure, and it also shows others the roadmap of how you got there. That provides several advantages because it shows:
- how work directly aligns with stated goal
- progress of critical work
- who is responsible for each activity
- everyone that what they do is important and how their work directly drives corporate goals and objectives
- how much has been accomplished
Be open about your KPIs. Tell the whole company about them. Make results visible for all.
Creating a hierarchical map
Make KPIs more effective by mapping them out. There is a logical thought process for how those numbers were conceived that creates a hierarchical, decision structure. By showing the logical structure of how KPIs are conceived, team members understand how they are determined, what activities people are working on, and how their work affects business performance measurement and the overall goals for the company.
Saying that blogging more will increase Revenue is a flawed approach and not well thought-out. That’s just guess work and people don’t buy into targets that are not supported by logic.
Instead, figure it out systematically.
- You might say that your Goalis to increase Revenue by 10%;
- a criticalitem to accomplish that might be to improve your overall presence in a certain market;
- to do that, you need to engagewith a new audience who is unfamiliar to you;
- and the persona or segmentis to be engineers in North America;
- for that the approachyou may decide on is to show thought leadership;
- an actionto accomplish that may be to host webinars regularly;
- you establish a KPIto monitor how many webinars you offer per month and another to track the percentage increases in webinar attendees; and then a third KPI of how that is increasing over time;
- you set a target of hosting 4 blog posts per month, and a 20% increase in blog attendees for each month. (Or you might add a KPI to monitor how engaged your audience is for each webinar are by tracking participation or comments people leave and how that improves over time.)
This provides an organized flow of how the decision of increasing blog interactions was determined. “Increase Revenue” is the goal and the measurement of that is a KRI. But by using this approach we can determine what the actions are to accomplish that result and which KPIs we should monitor.
When team members are empowered and involved in determining their targets and KPIs, they tend to be more engaged, motivated, and productive. Involving team members in the process of setting their goals enables them to take ownership and commit to achieving them.
Additionally, when team members see how their individual targets and KPIs fit into the organization’s broader objectives, they can appreciate the significance of their work and its impact on the whole team. This, in turn, can lead to greater self-management among staff and enable supervisors to focus on other tasks, secure in the knowledge that their team is performing effectively.
In conclusion, KPIs play a critical role in driving business decisions and monitoring performance. By defining KPIs in a logical hierarchical structure, businesses can create better KPIs that are more effective in identifying and tracking performance. At Kpi Karta, we understand the importance of identifying and tracking KPIs effectively, and we are committed to helping our clients achieve their goals by providing them with the tools and resources they need to succeed.