The pitfalls of “false” KPIs
Earlier, we covered several methods of defining the right key performance indicators. Many organizations still use “false” KPIs: they may be indicators, but they’re not necessarily key! There are several negative side effects of measuring performance using false indicators instead of genuine KPIs (de Bruin, 2001). This can lead to perverse incentives and negatively impact the business. Below, you’ll find seven common pitfalls of working with false KPIs.
- Increasing production goals without changing the professional organization behind it. If the workplace can’t keep up with the demands placed on them, they’re unlikely to meet their new goals.
- Only focusing on cash cows; products and services that can be produced quickly and easily. This strategy can block innovation, while your competitors probably won’t be sitting on their laurels. A lack of innovation can hurt your competitive edge.
- Optimizing input by applying “selection at the gate”. This may make it seem like the processes deliver better output. For example, a university improved its performance by selecting student who excelled in high school. That can cause complacency, because the direction neglects professionalizing its internal organization. There’s no incentive to improve or innovate the program.
- Only focusing on quantitative information can result in a drain of expertise and professionalism. A TV channel that only chases ratings might forego educational content.
- Working on sub-optimizations, which means the organization as a whole falls behind the competition. An organization might perform well in a chain, but if it’s unwilling to share its competencies with others in the chain, things go wrong.
- Measuring performance can lead to greater transparency. The organization also becomes more vulnerable to cost-cutting or interventions from outside or above. This can also work to the organization’s advantage: if the organization performs well it can serve as an example to others.
- Working with false KPIs can lead to a kind of bureaucracy where the organization knows anything and everything that can be measured, from the most useful to completely useless information. Registering data should be a means to an end, not an end unto itself!
An intelligent organization carefully balances short and long-term thinking. They focus their measurements on the things that matter most to them (KPIs and the most valuable insights).
Read more about KPIs:
Watch out for misleading KPIs
Firstly: the term performance indicator can be misleading. What may be a genuine KPI for one person is a boring number to someone else. The sickness leave rate is probably a KPI for a professional HR manager, but for the commercial director it’s just a number. It’s not critical for the (financial) performance of the sales force. Unless it suddenly goes up by entire percentages, or if low sickness rates create a clear competitive edge. Despite the various perspectives in an organization, you can follow several basic principles to determine if an indicator is a genuine organizational KPI or not.
The pitfall of hundreds of KPIs
Some organizations have hundreds of KPIs. One particular company defined over a thousand. They even called the project “Goal”! But it’s impossible to score with so many KPIs. The situation can be compared to a soccer team. A good coach won’t make the entire team play offense, because he knows there are only a few good offensive players. This approach isn’t just too expensive, it also has a very small chance of success. The bad attackers get in the way of the good ones. The result is an overcrowded playing field, or in BI terms, a cluttered dashboard. Also, in this hypothetical formation, the most essential players are left out: the mid-fielders.