Opinion: KPIs needs a total rethink – the myths

To get performance measures to work, we need to challenge the myths they have been built on, writes David  Parmenter.

I have studied and written about performance measures for over 20 years, but in that time I have witnessed minimal progress in the right direction. Deriving measures is often viewed as an afterthought. Measures are regarded as something we fill into a box to say we have achieved a goal. I firmly believe that performance measures exist for a higher purpose — to help align the staff’s daily actions with the organisation’s critical success factors (CSFs).

Yet all too often the measures in an organisation amount to a random collection of metrics prepared with little expertise, signifying nothing. To make matters worse, these measures can cost the organisation dearly:

  • Measures are sometimes gamed to the detriment of the organisation so that executives can increase their pay.
  • Teams are encouraged to perform tasks that are contrary to the organisation’s strategic direction.
  • Costly “measurement and reporting” regimes lock up valuable staff and management time.

To get performance measures to work, we need to challenge the myths they have been built on. I want to address some of these myths:

 

Myth: Most measures lead to better performance

Every performance measure can have a dark side—a negative consequence or unintended action that leads to inferior performance. Well over half the measures in an organisation may be encouraging unintended negative behaviour. KPIs are like the moon, they have a dark side.

 

Myth: All performance measures are KPIs

Throughout the world, organisations have been using the term “KPIs” to refer to all performance measures. No one seemed to worry that they have not agreed on a common definition of what a KPI actually is. Thus, measures that were key to the enterprise were being mixed with measures that were badly flawed. Let’s break the term down. “Key” means key to the organisation. “Performance” means that the measure will assist in improving performance. In my book Key Performance Indicators —Developing, Implementing and Using Winning KPIs I have concluded that there are four types of performance measures.

 

Myth: By tying KPIs to pay, you will increase performance

It is a myth that the primary driver for staff is money, and that an organisation must provide financial incentives to achieve great performance. Recognition, respect and self-actualisation are more important drivers. In all types of organisations, there is a tendency to believe that the way to make KPIs work is to tie them to an individual’s pay. But when KPIs are linked to pay, they can create key political indicators (not key performance indicators), which often leads to a manipulation of the measures to enhance the probability of a larger bonus.

Operational measures that are key to success are too important to be gamed. Performance is expected, or as Jack Welch says “It is a ticket to the game.”

 

Myth: Measuring performance is relatively simple and the appropriate measures are obvious

There will not be a reader who has not, at some time in the past, been asked to come up with some measures with little or no guidance. Performance measurement has been an orphan of business theory and practice.  Performance measurement is worthy of more intellectual rigor in every organisation on the journey from average to good and then to great performance. I believe the performance measurement process needs a specialist, that Dean Spitzer calls a “chief measurement officer.”

 

Myth: KPIs are financial and non-financial indicators

When you put a dollar, yen, pound or euro in front of a measure you have placed a value on an action or event that has taken place. It is the action or event that is the driver. Thus, I believe there are no financial KPIs on this planet. Financial measures will always be used to measure the performance of a group of teams working together. However, they will never pinpoint the problem, or what went well, as they are a result indicator.

Next steps

  1. Ascertain how many of these myths are operating in your organisation.
  2. Gather the war stories about dysfunctional measures within the organisation
  3. Look at your current measures and discuss with the relevant staff: “If we measure this, what does it encourage you to do?” Abandoned those measures where the dark side creates too much adverse performance.
  4. Email me ([email protected]) and I will send you a full write-up on all the myths surrounding KPIs.

 

David Parmenter is delivering his one day KPI masterclass –
Wellington 15 May; Christchurch 16 May; Auckland 18 May

 

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