The Art of Setting KPIs
The Art of Setting KPIs
How to create KPIs that drive engagement and performance
by Andrew Cooke, Growth & Profit Solutions
“If you can’t measure it, you can’t manage it”.
Although this is true many companies don’t know what to measure or, if they do, they don’t know how to establish KPIs.
Why is this so important?
KPIs drive behaviour – if you know you are being evaluated against certain metrics then you will adapt how you work and how you perform. This sounds good, but it can also be highly counter-productive, especially if you don’t know what to measure or measure the wrong thin. The result: bad management, mixed messages, confusion and employees focusing on the wrong thing.
You need to establish and develop your KPIs with care. Have too few and you may have an unbalanced “portfolio” of KPIs, have too many and it becomes a case of “everything is a priority, nothing is a priority”.
KPIs vary for different areas and different roles – but they are all underpinned by one factor: the company’s strategy and operations. As such your KPIs are the indicator of where the company is headed. But it is also the one area that many companies mismanage as they are not thinking about how a KPI is helping the company to meet its targets.
Goals are not KPIs
A common mistake is to confuse KPIs with goals. The two are not the same.
For example, a company wants to achieve a $100 million of sales – this is often assumed to be the KPI when it is not. In this example the KPIs there should be about the sales process. The KPIs might be about how many new customers, how many customers visited gave a repeat visitation, how many of those visits ended up in a presentation and how many of those were closed as deals. The KPI has to measure the process. You want the KPI linked to the corporate goal but it is not the goal itself.
When looking at the process you are measuring make sure that the KPIs relate to the corporate goals. For example, having a KPI of sales reports in time does not drive sales – it only supports the process. Furthermore every industry has formal KPIs (often found in the job description) and informal KPIs that are not written down. Like incongruent KPIs pulling in different directions, they can leave employees confused and disenchanted.
KPI is about Performance, Not People
KPIs are not about measuring people, they are about the process. The KPIs are there to measure the performance of the organisation and KPIs are tools that people can use so that they can work not just in the business but also on the business, in other words improve the way the business works and improve its performance. They track the strategically important goals and objectives of the business.
It is absolutely critical for managers to develop the KPIs in consultation with the employee. Developing them in isolation and imposing them on high creates, at best, a lack of buy-in and at worst total disengagement. People want to succeed, and they want to be involved in how they succeed.
When discussing this you need to talk about three things:
- What the person is employed for, and
- What is going to give them satisfaction that will ensure they stay loyal and motivated; and
- How this relates to the company’s main goals
Once there is a shared and common understanding you need to discuss the KPIs that are most effective and relevant to the processes that affect how they work and perform. This is not to say that each individual has their own unique set of KPIs, rather that there is an agreed and understood portfolio of KPIs that complement and reinforce each other, whilst aligning the individual and team(s).
KPIs need constant monitoring to have relevance. If they are measured, for example, only on a quarterly basis then it becomes like an exam. It is viewed as being extraneous their job, rather than intrinsic. This creates a feeling of irrelevance, a lack of commitment to the KPIs and people having to be forced to comply – creating ineffective KPIs and reduced performance.
So what have you done and what are you going to do with your KPIs? Talk to your people. Be clear on your goals, understand the key processes to be measured, and make the KPIs relevant, meaningful, measurable and review.