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 10 biggest KPI mistakes I have seen businesses make time and time again. Avoid them at all costs!
1. 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.
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.
2. 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.
3. Measuring everything that walks and moves
There is also 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.
4. Collecting the same measures as everyone else
Another big error people make is developing their KPIs by looking at what everyone else is measuring. So, a business leader may decide that KPIs are something she really needs to take seriously but, rather than work out what information she really needs,she will look at competitor businesses 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.
5. 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 want to have to wade through pages and pages of KPIs to ferret 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.
6. Hardwiring KPIs to incentives
Linking KPIs to incentives (such as a bonus or pay rise) is really dangerous 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. 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.
7. Not involving executives in KPI selection
What I see in my work with 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.
This is a 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.
8. Not analysing your KPIs to extract insights
Another common mistake with KPIs is that no one inside the business is really analysing 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.
9. Not challenging and updating your KPIs
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.
10. 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. By avoiding these 10 pitfalls, you can ensure your KPIs are designed, implemented and used exactly as they were intended – to help your company succeed.