When KPIs Backfire
BY LAUREN DREXLER – CLIENT DIRECTOR
A good leader knows the importance of goal setting to measure success. Leveraging Key Performance Indicators (KPIs) is a common practice for tracking progress towards achieving desired business goals. If you’ve worked for a company in the past few decades, chances are pretty high that you’ve encountered them. And if you’ve encountered KPIs, chances are also pretty high that you’ve come across a few bad ones.
No matter the industry, companies have gotten pretty comfortable setting KPIs (and lots of them), but are not so great at setting good KPIs. Setting targets and measuring success doesn’t seem like a risky venture, but it absolutely is. A bad KPI can elicit unintended behavior from your employees, create a negative experience for your customers, and waste lots of time and money. In fact, my colleague recently wrote an article challenging revenue as being an appropriate KPI. Check it out here.
The key to preventing bad KPIs is assessing their quality and impact. Before you set a KPI, you should ask yourself four questions.
1. IS THIS KPI MEASURABLE?
This seems like a no-brainer, but all KPIs should be measurable. Here are just a few examples of goals I’ve seen organizations set:
- Increase customer loyalty
- Make the buying process simpler
- Inspire our customers
All three of these KPIs are well intended, but none of them are measurable. Better options for these examples, respectively, are:
- Improve NPS scores by 5%
- Cut the number of required fields in our online checkout process by half
- Increase mobile app downloads by 10k/quarter
A good KPI is measurable, but a great KPI is easily measurable. If you need to undertake an extensive and costly research project every time you want to track results, you may want to consider an alternative success metric.
You should also always establish your measurement plan before you socialize a KPI. If you can identify a way to operationalize and automate tracking, you’ve found yourself a really good one.
2. CAN I HOLD SOMEONE ACCOUNTABLE FOR THIS KPI?
How many times have you heard something like this from your boss: “For our business to succeed, we have to increase our units sold by 5% this quarter. You are all directly responsible for achieving this goal.”
The problem is, when everyone is accountable for the same goal, no one is accountable. Even the most well-run organizations fall prone to competition and politics, and giving all of your direct reports the same goal is a surefire way to pit them against one another, create disorganization, and reduce the likelihood that you will achieve your goal at all.
You should take a waterfall approach to setting goals and distilling those goals into specific KPIs throughout your organization. Set a broad goal for the organization that’s tied to the bottom line. Then break that goal into a specific KPI by function. Each functional leader should be accountable for her team’s KPI, and responsible for distilling it further so that each team member is given a specific KPI that he can directly control. At the end of the waterfall process, each individual’s KPI should ladder up to the broader organization’s goals.
If you can’t name the one person you congratulate when a KPI goal is hit, then you can’t hold him or her accountable when it’s not. If you can’t hold someone accountable for not hitting a KPI, your chance of success drops dramatically.
3. WHAT BEHAVIOR IS THIS KPI ELICITING FROM MY EMPLOYEES?
This is one of the most dangerous pitfalls when it comes to KPI setting. Just last Fall we saw a cautionary tale in the news. Even the most well intentioned KPI can become toxic if it’s eliciting bad behavior from your employees. A common example of a frustrating, but relatively harmless result of a KPI of this nature is a hockey stick sales trend. At other points on the danger spectrum are KPIs that lead to poor customer experiences, sneaky tactics, and even fraudulent or other criminal activity.
A good leader will talk to the teams on the ground and set KPIs that result in the right kinds of employee behavior to achieve business results. They should also continue to monitor the impact of a KPI on employee behavior over time.
In addition, always remember to ask yourself “If I achieve this KPI, what impact will it have on my customers?” If your KPI drives good behavior in your organization, and results in positive customer experiences, you’re eliciting a positive outcome all around.
4. DOES THIS KPI DRIVE MEANINGFUL CHANGE?
Companies often have too many KPIs, making it hard for their teams to focus and succeed. The best KPIs are the ones that ladder up to a goal and drive meaningful business change.
Some common examples of KPIs that don’t drive meaningful change are:
- The number of surveys you send to your customers
- The amount of time your employees spend in the office
- The number of customer service calls you receive
This isn’t to say that all KPIs should have an obvious impact on the company’s bottom line. As mentioned in the section above, goals should be distilled into KPIs throughout the organization. Unfortunately, many KPIs don’t ladder up to a bigger goal. The problem with these types of KPIs is that they distract your employees from focusing on what really matters, wasting important time, money, and resources in the process. It also leaves employees frustrated when they don’t feel like they are spending their time productively.
If you can’t easily explain how a KPI will directly help you achieve your overarching business goals, it should probably be left on the cutting room floor (and don’t forget to start medium).
DON’T LET YOUR KPIS BACKFIRE
At Elicit, we’ve encountered these real-life examples of bad KPIs too many times to count. The good news is, when it comes to KPIs, it’s never too late to course correct. Ask yourself: “Can I answer the four questions above about my team’s KPIs? Do I like the answers I get?” If you continue to evaluate the quality and impact of your team’s KPIs, there’s a much higher likelihood that they won’t backfire on you.