Chapter 20

The Ten Biggest KPI Mistakes to Avoid

In This Chapter

Measuring everything

Linking KPIs to incentives

Failing to act on KPIs

The use of KPIs is one of the 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. Below are the ten biggest mistakes people make when instituting a KPI methodology or framework. Avoid them at all costs!

Measure Everything That is Easy to Measure

This is by far the biggest mistake that people make with KPIs – they work out what is easy to measure and measure everything that is easy to measure regardless of its relevance to the business.

Senior executive teams will often brainstorm KPIs and what they could measure. Usually the indicators they end up with will be the ones they have heard of, read about in a management journal or indicators they are already measuring. Obviously this is not the best way to develop KPIs because the resulting list is very often overwhelmingly long, the indicators are not relevant to the strategy of the business and do not answer the most critical questions.

Measure Everything Everyone Else is Measuring

A trap that many businesses fall into is looking to other companies and competitors to see what they are measuring, and then just doing the same.

For example a business leader may notice that many businesses are conducting staff surveys or customer experience surveys and think that they’d better do one too. Rather than taking a step back and working out what questions they need to ask they look elsewhere at the questions other businesses are asking and follow suit. As a result what they measure is often just regurgitated existing KPIs, or metrics prompted by external sources or the most recent leadership book. The ones they should be measuring are the ones that are directly relevant to that business.

Not Linking KPIs to 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 strategy or determined by strategy then the company is always wasting huge amounts of time and money collecting information that is never then used by the business.

Not Separating Strategic KPIs from Other Data

There is no shortage of data and information inside most businesses, including financial,sales, customer, legislative and compliance data.

The problem, however, is that often all the KPIs are lumped together in one long KPI report or on an 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.

Hardwiring KPIs to Incentives

Hardwiring KPIs to incentives is really dangerous in business, and 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. KPIs 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 an incentive such as bonus or pay rise. And as soon as that happens the individuals involved can become very creative in how they manipulate the information – or their behaviour – to ensure they receive the incentive.

When the number of people on waiting lists became an incentive-linked KPI within the National Health Service (NHS) a few years ago, managers, administrators and doctors just got creative and delayed putting patients on a waiting list in the first place. This had the effect of massaging the data, giving the impression of diminishing waiting lists.

Not Involving Executives in the KPI Selection

What I see in my work with senior executives is that they get excited about strategy and the big picture. Those who are interested in numbers might want to design specific KPIs (finance directors, for example), but most executives are not. As a result, senior executives who work on the strategy know that they need KPIs and dashboards to monitor and understand what’s happening, but they then delegate the process of identifying or designing the right KPIs to someone else.

This is a mistake. The senior executives must be involved in the decision making process, otherwise they will not feel ownership of what is created. 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, so that there is a clear, strong, understood connection between the strategy, the KPIs and the questions those KPIs will answer.

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.

This is often down to a disconnection 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 don’t understand the relevance of the data, so are just presenting it. 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.

Not Challenging Your KPIs

Once a business has identified or designed the right KPIs, it often never questions or challenges them as to whether they remain relevant, linked to strategy or useful in helping 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 so don’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 and they look at them rather than being a real time navigation tool for better outcomes and performance.

Not Updating Your KPIs

The business strategy and information needs of companies are rarely static. They change, yet too often the KPIs do not.

Too often companies go through the process of designing their KPIs and then they run with exactly the same KPIs for five or ten years, even though their strategy has changed several times during the same period. Whenever there is a change in strategy, corporate priorities or the questions you need to answer, you need to review and update your KPIs to make sure you only measure what you need to measure, and that the KPIs remain relevant and aligned to the new strategy.

Not Acting on Your KPIs

KPIs can shape strategy and inform fact-based decision making inside business, but only if those inside the business act on them. In the end it doesn’t matter how great your reporting system is or how brilliantly you’ve aligned the KPIs to strategy, how cleverly you’ve sought answers to business critical questions or even how well you’ve captured and presented the relevant KPIs: If they are not used as they were intended to be used, then it’s all been a waste of time and effort.