Let’s Ban KPIs…
June 14, 2016 by Stacey Barr…Or perhaps more specifically, let’s ban how we are currently using KPIs. We use guesswork to identify KPIs, they don’t tell us what our priorities are, we fudge the numbers and confuse improvement goals with business-as-usual.
This post was inspired by a friend who works in the field of customer analytics and is particularly gifted with data and statistics. He told me the story of a series of “brainstorming sessions” he was invited to with the Execs of the large organisation he works with. The brainstorming included coming up with ideas for what the key indicators and targets should be for the business. My friend’s role was to collect the data so they could then determine the “right” ones. Sounds logical and lots of businesses do this, but after six weeks of back-and-forth with more KPI ideas, looking at the data to hopefully get some inspiration, the Execs figured their attention was probably best needed elsewhere.
KPI Issue #1: Using gut-feel to determine what our key indicators are. Brainstorming is a great creative idea generation process, but not good for figuring out what our KPIs need to be. Instead we should be clear on the result or outcome we want to achieve, then design the measures that will provide the best feedback on our progress towards the result.
I was recently engaged to review the Exec Balanced Scorecard (BSC) for a medium-sized financial services group. The spreadsheet was really well laid out around the four quadrants of performance, objectives aligned, weighted targets and the measures that were complete in place, and others still to be developed noted. All seemed good. However, as a team the Execs had 14 targets, each with a weighting of either 5% or 10%. And this is the point of the BSC right..? The problem though is that everything is balanced, so with 14 targets all weighted pretty much the same, there is no focus, no priority. From talking with the Exec two key priorities for the business were very clear in his mind, yet they were not reflected in the BSC targets, at all really.
KPI Issue #2: KPIs do not signal the focus area or priority we are trying to improve or get the most traction on. Key Performance Indicators should provide a key message to the organisation about what is important, what deserves the most of our attention and effort.
The irony about the previous example is that McChesney, Covey and Huling in The 4 Disciplines of Execution (2012), presented research that showed if you had between 11-and-20 goals, your chance of achieving those goals “with excellence” was zero. Maybe if you had 2-3 goals you would have a good chance of achieving those 2 or 3 goals. And yet most organisations report that they achieve their goals, and the Execs in the previous example will probably claim a victory next year. So what is happening here…?
KPI Issue #3: KPIs are used as targets to ‘manage or reward performance’ which tends to mean that we will set and agree the targets we know we can get. Or, maybe we manipulate the data in some way to claim success. And in turn polluting the quality of the information we use to make decisions. KPIs should provide people with the encouragement to improve the performance of the processes/systems they manage.
During a recent In-house PuMP Blueprint Workshop, I made a throwaway comment that some organisations have about 150 KPIs. A manager within the group that evening counted their current number of KPIs and reported it to be 194. So, 194 key performance indicators. That takes a lot of juggling.
KPI Issue #4: KPIs are used to mix up BAU with target-areas-for-improvement and then successfully hide what is important. Not all measures should be KPIs.
DISCUSSION:
So, let’s open the discussion – do these KPI issues resonate with you? Are there more KPI issues?
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I agree, it is common to mix BAU activity measures with KPIs; I think that an unthinking reflex of “kpi=good” is too easily and sounds good in some board rooms.
In my own business I’ve developed one KPI (thus ‘k’, ‘key’ means something) that will ‘indicate’, that is, not demonstrate conclusively, performance and is sufficient to trigger further investigation if all is not as expected.
For this KPI to work, a whole lot of other actions need to occur; but I don’t need to measure these, I just check the KPI, and the KPI is about customer experience: the only thing that really matters
Agreed, customer experience is the ultimate that matters. I do like to measure other drivers of it though, David, particularly when I’m doing business experiments to test the impact of different improvement strategies on an outcome like customer experience.
Why not to limit oneself with D.Parmenter’s definition of the KPIs?
This will remove main issues.
Revaz, yes I hear your point. But the trouble is that the term KPI has gained so much global momentum that any one person’s definition is drowned out in the noise. Even the great David Parmenter’s! I’ve stopped fighting the terminology battle and instead focus more on the process and meaning of it all.
Thoughts here: http://staceybarr.com/measure-up/question-4-things-more-important-than-the-kpi-terminology-debate/
Whenever we are implementing Lean Enterprise Management with our clients, we focus on restraining the number of KPIs to two per stakeholder value with each stakeholder value weighted towards the goal of having a balanced, lean organization. One KPI measures the stakeholder value and the other measures the reduction of waste towards achieving the desired result for the stakeholder.
Ken, I suspect you’re on to something there. I wonder sometimes if waste (of any kind) is something we should always be measuring?
KPI’s about as much good as a chocolate teapot unless those who need to achieve them are told clearly what they are, they are actually achievable and they are resourced. Oh, don’t move the goalposts, this naff’s everyone off and causes friction and mistrust
And I would add, David, that KPIs are still a chocolate teapot if people aren’t actively involved in choosing the measures they need to be using.