KPIs are a powerful tool
Many organizations are increasing their focus on the key performance indicator (KPI). That’s not surprising, because it’s a very powerful management tool and KPIs are at the heart of every business, including yours. The trick is defining the right ones.
However, KPIs and SMART goals are very specific and you can make mistakes quickly. It’s easy to focus on the wrong indicators. Or to define so many (not) Key Performance Indicators that you can’t see the forest for the trees anymore. We’ve listed the 5 biggest KPI blunders for you, so that you can avoid them in the future.
1. Fixation on revenue
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 liter of paint produced also increased. The board refused to discuss this information and continued along the same path. The result? The company found itself in deep 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).
“Using the SMART KPI Toolbox, we reduced the number of KPIs in our company from 80 to 15 essential indicators.”
3. Too many KPIs
A medium-sized city council enumerated 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 management book The Intelligent Organization, says:
“When I taught our master class in Singapore, I also asked that question. This question puts the participants on the right track from the get-go. 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. In these cases, you should look at the next-biggest disaster that could occur, something that you do have data for.
5. KPIs without feedback
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 declined 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 the breakfast of champions.
Prevent a KPI disaster
Want to prevent these KPI blunders? Then order the SMART KPI Toolbox now: less measuring = more knowledge!
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