KPI usually stands for “key performance indicators”, but I have seen enough damaging KPIs to warrant the acronym being changed to “killing powerful initiatives”.
What are KPIs good for?
KPIs are one tool in the arsenal of management consultants. They are used to help assess employee performance against measurable outcomes (e.g., financial or sales targets, process documentation, etc).
A sophisticated KPI system tries to align the employee KPIs with those of the company and its vision and mission.
This is backed by continuous feedback and support for each business division and each employee, to help reach their targets.
Where it all goes wrong
Always ensure that KPIs do not become the purpose instead of the mean. They should only be stepping stones towards the higher purpose as expressed in the vision and mission of your business.
Most importantly, remember that KPIs are not rules. There is a great deal that goes on in a good business model that cannot be measured by a KPI.
For instance, how do you reliably measure or promote openness and trust amongst employees?
Vision one way and action the other
The vision and mission of many businesses include words such as open culture and trust, stimulating environment, etc.
At the same time, however, meeting the KPIs becomes the goal of each business division, which itself can lead to conflicts
Success with a KPI focused on financial targets may overlook the way that has been achieved by enforced payments and lower customer satisfaction.
In simple terms, when I help my clients with their KPIs, we usually start by writing the key business performance indicators on a white board.
These cover all aspects of their business. To help them focus I usually categorise each indicator under one of these four words that begin with the letter P:
- Profits (financials)
- People (clients, employees, colleagues, community, etc)
- Products (or services)
- Process (risk management)
Then we openly discuss with all the business units what each division needs to do to take us one step closer to the business KPIs (e.g., over one year).
The outcomes will translate to the KPIs of each division and then to the contribution of each employee. We then ensure that the sum of all the KPIs of the various divisions reconciles to the business KPIs.
Once agreed, we design all the necessary metrics to help us monitor and measure performance (e.g., financial targets, employee engagement surveys, client satisfaction surveys, etc).
Should KPIs become key performance improvements?
If used and monitored well, KPIs help improve performance by acting as a reference point in a feedback process.
But they should always remain subject to change and adjustments if they prove inadequate or ineffective.