Be Cautious with KPIs!

Many businesses, responsibly, establish cyclical strategic processes.  They perform these processes to have clarity regarding their competitive environment, establish goals and set key performance indicators (KPIs).  It is common sense, to achieve something, you have to manage it, and if we measure our advances it will be easier to achieve it.

However, it is common for businesses to make the following mistakes:

  1. To many KPIs.  According to PWC’s Guide to KPIs, businesses should have between 4 and 10 key indicators.  Businesses are complex, and sometimes we want to measure everything, but the reality is that this is counterproductive.  When you are managing 30 KPIs at an executive level, the reality is that they stop being KPIs, because no one pays attention to long reports, and the information is not use for decision making.  For example, if we want to improve customer satisfaction the key indicator can be to reach 90% customer satisfaction.  Of course, this indicator can have other subcomponents that measure different areas, for example, time of service, survey results and rate of customer retention.  The point is, at a global level, everyone needs to understand that the objective is customer satisfaction and know if it is being achieved; maybe not everyone needs to know the time of service, except the people in operations. 
  2. Misguided KPIs.  Sometimes indicators are chosen because of their ease of measurement and not because of their relation to objectives.  For example, it is very common to use indicators about the percentage of progress on a timeline.  But if what you need is to finish a project on a certain date and within an estimated budget, what needs to be measured is the percentage of variation with the timeline and the budget, this way we will notice if we are late or over budget.  Other times, indicators are chosen without evaluating the unwanted impacts or results they might have.  The already typical Wells Fargo case, where 3.5 million in bank accounts and credit cards were generated, without the consent of the clients, because employee performance was measured by the number of accounts created.  The reality is that this huge bank had a strategy of maintaining long lasting relationships with their clients, and the pressure of meeting this indicator took this strategy and the company’s values overboard.   
  3. Turn KPIs into strategies.  When a strategy is established for the first time, it is interesting and even exciting to perform analyses to find the way to get a sustainable competitive advantage to an organization.  Later, a process is established for the formulation of objectives, goals, indicators and initiatives that becomes cyclical.  The problem is that the strategy has to be revised every so often, and sometimes it happens that the strategy turns into only formulating goals and KPIs.  The importance of analyzing the environment, the competition, the industry and the clients is lost.  Without these analyses a strategy or a group of conscious actions that allow the addition of value and superior financial results cannot be defined.  

This doesn’t mean that there is no need to measure.  Measurement and follow up are the most effective ways of execution.  But the process of planning indicators requires the investment of time, knowledge, and a critical view that allows the selection of the right indicators and the measurement of what is really important, easing de achievement of outstanding results.

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