Think twice about your KPIs
Identifying priorities, defining Key Performance Indicators (KPIs), setting targets, and monitoring progress are crucial activities for growing your business. Setting and monitoring KPIs provides valuable insights into performance and areas that need attention. However, sometimes the KPIs we set do not serve their purpose. Not everyone in your organization may be happy with them – and sometimes they are right! Based on our combined expertise in KPI setting and psychology, we present five common pitfalls to avoid.
Pitfall 1: Using too many indicators
It can be challenging to remember many indicators and effectively communicate them to stakeholders. Additionally, the more indicators you have, the greater the risk that some will quickly become outdated and irrelevant. This can create resistance among users.
It is best to focus on a few indicators that cover different domains that are truly important for your organization. If these indicators are all evolving positively, you can be confident that you are on the right track.
Pitfall 2: Using targets that are too easy to get
KPIs that are too easy to achieve are not motivating. As soon as it becomes clear that the target will be reached, people tend to lose motivation and slack off.
Use an ambitious target that can be achieved with enough effort. This will help maintain motivation and drive for success.
Pitfall 3: Using indicators that are too ambitious
Overly ambitious KPIs are not motivating because they are impossible to obtain. People might focus on collecting arguments as to why they are not achieving them, rather than doing their best to get as close as possible.
Use a target that is challenging but attainable with enough effort (e.g., in 2 to 3 years).
Pitfall 4: Using an indicator that is ‘too correct’
KPIs are often based on complex calculations and specific elements that reflect the actual situation. However, if people are not familiar with them or if the specifics change rapidly, these types of KPIs tend to be ineffective because they are difficult to understand. Moreover, it is often difficult to know exactly how to improve them.
It is better to have a relatively simple indicator that is easy to understand and to communicate and stable over a longer period, making it more useful in the long run.
Pitfall 5: Using indicators that elicit perverse behavior
Some indicators are easy to manipulate. For example, in a KPI measuring turnover/FTE, people might use more subcontractors to lower the FTE count and increase the value of the KPI. The more people fear a "penalty" if they don’t achieve their target, the more likely they are to manipulate the data.
Ensure everyone is involved, set an ambitious but achievable KPI, and consider potential perverse behaviors from the start to avoid them.