All forward-thinking businesses with a desire to improve will have KPIs. I have seen and implemented many versions of KPIs over the years. Although the specifics of any set of KPIs is as unique as the business, there are some common mistakes. Here the top 8 common mistakes that I have witnessed over the years.
1. KPIs are Not Key
The clue to the first mistake of KPIs is in the title, “Key Performance Indicators”. They must be KEY. In most cases a business should have a maximum of around 6 to 8 KPIs. They should be the top-level measures of the business. You can of course have as many measures as you like which influence the KPIs. It is often important to breakdown KPIs to sub-measures to get a better understanding of where opportunities may lie. It may be helpful to draw a tree diagram of KPIs and measures (or PIs) to understand the relationships, and to help others’ understanding.
2. No Alignment with Strategy
KPIs should form part of an improvement strategy. It is important to be clear on what you want to be different and why. Although KPIs should be balanced across all aspects of the business (balanced scorecard), the targets you set will be the driver of any change programme.
It is also important to consider two other points with KPIs and measures. Firstly, conflict – ensure one does not conflict with another, i.e. by improving one measure another unavoidably declines (more common with measures than KPIs). Secondly, there will be some overlap and interdependency of KPIs and measures, this should be minimised or you are risking the opportunity being over-stated.
3. Missing or Misaligned KPI Sub Measures
Measures, sub-measures, PIs, control factors, the semantics are unimportant, they are the influencing measure that form the KPIs. They should wholly explain where the opportunities are to improve the KPI. In many ways the sub-measures are more challenging to design and are (ironically) more important in many ways than the KPIs. The measures must make sense to the team members who will be helping to drive change. These measures must also be balanced, you do not want to drive one behaviour at the expense of another, especially safety.
Example: I recall a client who had a large call centre, they wanted to reduce call times as a part of their operating cost KPI. The measure they applied (incorrectly titled as a KPI) was “call time”. The target was to keep calls under 2 minutes. Staff soon realised that they could assess the complexity of an inbound call in a few seconds and if they thought it too complex to resolve in 2 minutes, they would hand the call off to another area, whether it was right or not to do so. Hand-offs, number of contacts or resolution success, formed no part of their measures, only call time. The outcome of course is many unhappy customers, and total call time going up. I think we have all been on the receiving end of that.
Measures are a subject in their own right. If there is the demand, I will write more on this in the future.
4. No KPI Gap Analysis
Most measures can be normalised to either 0% or 100% as an optimum – 0% for things you want to eliminate and 100% for things you want more of. It is important to do this if you can, as you will want to complete a gap analysis. When done well, the gap analysis should make it obvious what is (or is not) happening in your business that is preventing better performance. At the very least, the gap analysis will tell you where to look and the questions to ask.
What if you cannot use 0% or 100% as the optimum? For example, material costs. Sure, you would like it to be zero, but that will ruin your gap analysis. An alternative approach in this case would be to use benchmarking to drive the optimum value.
5. Lack of Action
Unless KPIs, measures and gap analysis drive action they are nothing more than a vanity project and the effort has gone to waste. There must be thousands of notice boards in businesses up and down the UK that have colourful charts, tables of numbers and motivating slogans, but are not supported by an Action Culture. KPIs, measures and gap analyses should be reviewed at different levels with concentric review cycles. They may be annually, quarterly, monthly, weekly, daily and even hourly (often called “short interval control”). The review is often a meeting. This is another subject that could attract an entire article. Put simply, this is how it should work:
Objectives should be clear. The appropriate information and previous actions are reviewed. New actions are agreed and assigned to an individual with a timescale. Larger actions broken into smaller ones to drive progress. When information is insufficient to agree an action, do not be tempted by debate and speculation, the action is “go and find out…”
6. Doing KPIs Manually
You have a clear strategy, balanced and comprehensive KPIs, measures and gap analysis. Great. But it takes hours and hours to collate the data and produce a well presented set of KPIs. This becomes counter-productive. You probably want to reduce costs, but you have now created a cottage industry of spreadsheet ninjas creating charts. The KPIs, measures and gap analysis are not the improvement programme or culture – taking action is where improvements are made.
Once the KPIs, measures and gap analysis are designed, it should be automated. By doing this, resources are used to drive improvement. Creating charts in Excel looks like value, feels like value and productivity, but it is not. It is essential, but non-value-added activity.
If your business has a fragmented data model (spreadsheets, paper, unlinked systems, etc), you will find this hard. Talk to us about a centralised data model.
7. Failing to Engage
KPIs are a part of an improvement programme, not a substitute for it. To get the most from this hard work it is essential to engage with the whole team from the start. Through a process of involvement, the team will own the measures, understand them, and with proper encouragement and empowerment they will drive the improvement themselves. Some assume that KPIs are a management activity. Treating them as such will severely limit the possibilities and leave KPIs lifeless and one-dimensional.
8. Trying to Measure Everything
Finally, it is easy to get carried away with KPIs. You cannot measure everything. People need to be treated as people. Applying measures to things like morale has limited value in my view. There is no substitute for good leadership.