Many organizations are increasing their focus on the key performance indicator (KPI). That is not surprising because it’s a very powerful management tool and KPIs are at the heart of every business, including yours. However, KPIs are very specific. A slip-up can easily occur. Therefore, we have listed the 5 biggest KPI blunders for you.
1. Fixation on turnover
A well-known paint manufacturer managed solely based on the sales and market share indicators. Clear targets, including remuneration, were linked to this. After thorough analysis of the process indicators, it became apparent that as market share increased, the loss per litre of paint produced also increased. The board did not want to discuss this information and continued along the same path. The result? The company found itself in trouble two years later.
2. Mesmerized by costs
A mental health institution invested many euros in a management information system. The first ‘KPI’ that was developed and put into operation was costs. When preparing the annual financial statements it turned out that there was a loss of almost five million euro. This was caused by having too many empty beds too often (process-oriented KPI) because the waiting lists had ‘dried up’ (market-oriented KPI).
3. Too many KPIs
A medium-sized council assigned more than a thousand KPIs. Several dozen for each service, department and team. However, it’s very difficult to score with so many KPIs. Compare it to a football team. A good coach wouldn’t dream of putting on eleven players as strikers. This would not only be too expensive, but the success rate would also be quite low. The bad strikers would just get in the way of the good ones. The result: an overcrowded dashboard.
4. An empty KPI shell
During our courses and workshops the first KPI question invariably arises: “What is the greatest disaster that can befall your business?” Daan van Beek, lecturer and author of The Intelligent Organization, says: “When I taught our master class in Singapore, I also asked that question. In this way, you get the participants on the right track at once. One of the participants was working for a company that had ships transporting gas and oil around the whole world. His answer caused some hilarity: ‘if one of our ships sinks’”. Statistically, that occurs once in a hundred years. A true unadulterated KPI, but no data.
5. KPIs without a story
It’s such a pity to have an insight that leads to nothing or to wrong decisions! A retailer had named precisely the right KPIs and had the insights ready. They were on the dashboard every week ready to be used. However, the director omitted to discuss the scores with the product managers on a regular basis, especially when the scores were not good. He immediately took action and got rid of exactly the wrong products. The story behind the numbers didn’t come to life. Feedback is thebreakfast of champions.
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