The mistakes companies make when setting KPIs
Key performance indicators (KPIs) can guide your business towards making the best decisions for better sales and productivity.
They help you to measure and understand how your business is progressing, with the end result enabling you to evaluate your success through quantitative results.
But there’s a fine art behind ensuring your KPIs deliver results. In fact, many businesses make significant errors when determining them.
And in the hectic modern business world, such mistakes can be a drain on your time and resources. So it’s essential to choose the right approach—and that’s where I can help.
Understanding what to measure
One of the reasons mistakes happen is due to a lack of knowledge about what to measure.
In Hubspot’s Metrics That Matter to Your CEO the inbound marketing experts provide key information. Director of strategy Barbara Gago explains the measuring challenges you’ll face as:
The result is you should look to capture the relevant data you need. As Hubspot puts it:
“Results ultimately stem from the right activities. So working backwards from the end goal like revenue to the front end of the sales process will actually help the salesperson understand the necessary activity to achieve their goal.”
Not making KPIs specific to your business
A lot of businesses compile data in a sporadic manner. They may have a brainstorming session or research what other businesses do and then apply key performance indicators based off those not entirely thorough processes.
Finding common KPIs and presuming they must work is potentially a major issue. They may not relate to your business or sector in any way. You need to look at what your individual goals are and look to create them from the information you have available.
The result is you need to link your KPIs to your business strategy—this’ll allow you to focus on what matters most.
You can turn to your company data to find KPIs that matter. Measurable business metrics are a goldmine of opportunity—this may be:
The trick is to be careful what you do with your data. Industry experts such as Bernard Marr (a business guidance professional) regularly provides talks about KPIs. As he explains:
“As business leaders we need to understand that lack of data is not the issue. Most businesses have more than enough data to use constructively; we just don't know how to use it. The reality is that most businesses are already data rich, but insight poor.”
In one of his YouTube videos he describes an example of a retailer struggling to take advantage of the right process.
In such instances, adaptability is important—along with the ability to admit to errors. Only then can you move forward and build on issues.
Micromanaging through excessive KPIs
Equally important is allowing your employees space to breath. Modern businesses typically like to think of themselves as progressive environments with room for infinite creativity.
But KPIs can stifle this. In the Tyranny of Metrics (2018), Professor Jerry Muller examines the obsession organisations have that success is achievable only by quantifying the performance of employees and dividing up the rewards after examining the data.
Muller argues businesses are now obsessed with measuring, rather than measuring performance, fixating on the abundance of new technology and the myriad impressive graphs and spreadsheets they provide. He explains:
“If what is actually measured is a reasonable proxy for what is intended to be measured, and if it is combined with judgment, then measurement can help practitioners to assess their own performance, both for individuals and for organizations. But problems arise when such measures become the criteria used to reward and punish—when metrics become the basis of pay-for-performance or ratings.”
Is this damaging business productivity? Muller argues it is. The solution is to take a step back and embrace some of the above techniques to provide your workforce with a chance to flourish with only a central set of KPIs to help drive your business forward.
Forgetting unique metrics
It’s often good business practice to look beyond the “normal” metrics that will provide you with your main KPIs. Some of these will include:
Thinking outside the standard norms, as long as the KPI you’re considering is relevant, can provide new insights and opportunities.
Have team input
It’s common for managers or directors to set KPIs, but this doesn’t mean you should ignore the input from your employees.
Business transparency and an open working environment can help you to determine issues you hadn’t considered before.
For example, an employee may come forward and recommend an area of their job they feel needs tracking. A director or manager won’t know the full ins and outs of their role, so if it’s a sensible option you can implement it.
But, it all depends on having a business environment that encourages your employees to speak up.
Failing to do anything about KPI results
From my experience, a startling issue about KPIs is businesses often don’t act on any of the issues they find. This is often due to being too busy or lacking the resources.
But it’s an incredible waste to establish a process to track your workforce, gain opportunistic insights, and then ignore or forget about the results.
This can be frustrating if you’re a consultant of any kind. Watching businesses miss opportunities they’ve worked hard to understand is confounding.
Especially so if you’re tracking customer satisfaction, as then you’re missing out on chances to offer those who use your business to enjoy a better experience.
The response to this is to scale back your KPIs so you have a manageable set of reports that support your core duties.
You can then syphon off duties to your managers and employees to ensure the right actions are taken.
Conclusion: What your KPIs should display
Key performance indicators are all about metrics that align with your business:
When you see the results at the end of any KPI period, your managers will want to look out for what business goals they’re aligning with.
They should consider qualitative data and what the results reveal. What does the data reveal? How can you act on it?
Keeping the mistakes highlighted in this piece is the first step. But you’ll need to be reactive each business quarter to keep on top of what your KPIs are delivering to your business.
It’s no good presuming they’re set in stone. Sometimes it’s easy to gloss over seemingly positive results and presume they’re fine—and will remain so. In the modern business world, this isn’t the case.
Your KPIs should be flexible. Based on your findings each month, you can tweak them as and when you need to. This can deliver better results in the long-term.
ABOUT THE AUTHOR
Liverpool-born Alan Price FCIPD, CMgr, FCMI is a successful entrepreneur and senior business figure.
Alan Price is senior director for the multi-award winning employment law consultancy, Peninsula ; managing director of Peninsula Ireland and Elected Director & Trustee for the Chartered Institute of Personnel and Development – CIPD.
Originally published September 27, 2019, updated Sep, 27 2019