Key Performance Indicators (KPIs) is one of those business topics that have been talked about a lot! The main conversation concerning KPIs has been around improvement and implementation, but rarely anybody talks about the most common KPI pitfalls.
Since key business performance indicators are talked about so much, managers and other business leaders assume that they know everything and, well, that’s when mistakes happen. In this article, we will turn our heads to the mistakes that managers and other business leaders make while measuring or implementing KPIs.
Your KPIs are too far from strategy
The main reason to measure performance in a first place is to gain a level of understanding of your business and measure your strategic and financial performance.
Make sure you are measuring the most important factors in the business because when KPIs are not linked to your strategy, you are wasting your time and money on collecting information that is not actionable towards your current business goals.
In a previous post, we discussed how to align your KPIs with your overall business strategy and measure the progress against these strategies, business growth factors and performance.
Measuring for the sake of measuring
One can face an ample of KPI pitfalls when trying to measure your results. There is a huge disconnect between measuring everything that can be measured and everything that should be measured. One of the problems with KPIs is that often it can be difficult to measure improvement if a number cannot be attached to it. We discussed the certain types of measurements that can be used in a post about KPI benchmarking.
Measuring to much
The biggest temptation with KPIs is to measure everything! But it’s one of the biggest KPI pitfalls! The assumption being that lots of information mean transparency, while the reality of having too much information can be as useless as too little. It can be harder to make assumptions about your business improvements as well as collecting so much data is wasting time and money that could be spent elsewhere. This comes back down to deciding on your business strategy and making sure your KPIs work for it.
Linking KPIs to incentives
Linking KPIs to incentives is one of the topics that are often discussed in the business. It is believed that giving people incentives to achieve certain KPIs, like sales targets or personal KPIs that benefit overall performance, will benefit the business. This is dangerous because it can create unintended consequences. This is because these KPIs stop being driving forces and become ‘musts’. And while from a business perspective this sounds reasonable, for the individuals involved this will drive them into incentive-based performance, which can take away creativity, experimentation and overall prevent invention by manipulating people’s behaviour to ensure they receive the incentive.
Not involving executives in KPI selection
Often KPIs are set by the operations and strategy departments. They look at the big picture and decide upon the strategy. This is problematic since they might not be able to see the problems that each department is facing, and will only look at the numbers.
Additionally, these KPIs set by the heads and leaders of the business take away the ownership of the KPIs from the people that will be working on them – therefore, they won’t use them. Or they won’t use these KPIs as their driving forces in the department.
Overall, the biggest mistake made when KPIs are put in place is that no one inside of the business is really analysing the data. Majority of the businesses will use KPIs as their measuring forces and set new business targets accordingly, however only true in-depth analysis will show what lies beneath the numbers. The truth of the matter is, all of this can be avoided if you connect with your colleagues discuss and analyse the KPIs.