What do KPIs do to company culture?
Key Performance Indicators (KPIs) are widely used by organisations to measure and track progress towards their goals. However, the relevance of KPIs has long been a topic of debate.
Pros and Cons of KPIs
Here, we present a list of pros and cons to help you understand both sides of the argument:
Pros
1. Measurement of Progress: KPIs provide a clear and quantifiable way to measure progress towards organisational goals. They enable companies to track performance over time and identify areas that require improvement.
Key tip: Too often organisations focus on the negatives, and overlook the good that is being done. Make sure your KPIs have a purpose and are used to celebrate and well as improve.
2. Alignment with Objectives: KPIs help align individual, team, and departmental goals with the overall organisational objectives. They provide everyone with a clear understanding of what needs to be achieved and how their efforts contribute to the bigger picture.
Key tip:
Does your entire team understand the purpose of KPIs and are they clear on the objectives? Failure to communicate clearly will only drive a culture of complacency, if people don’t know why the data is there. They will naturally feel threatened by its potential use. Get the team involved in creation of KPIs and ask them what they think needs to be improved.
3. Identifying Successes and Failures: KPIs allow organisations to identify both successes and failures. When well-defined and properly tracked, KPIs provide valuable insights into what is working well and what needs to be improved, enabling faster corrective actions.
Key tip: Don’t forget the key to improvement is to do more than correct, you must ensure you prevent re-occurrence by finding the root cause of the issue. Your entire workforce should understand root cause analysis and how to identify prevention. Enable and empower them to drive your organisation for you.
4. Benchmarking and Comparison: KPIs enable comparability across different teams, departments, or even industries. By setting industry or internal benchmarks, organisations can assess their performance relative to peers and competitors, facilitating better decision-making and goal setting.
Key Point
Just because another business or department measures that KPI, doesn’t necessarily mean it works for you. Make sure your KPIs are relevant. Some departments might have high throughput work or equipment, another department might be largely R&D where things take longer and equipment might not be suitable for high throughput. In this case there is no point measuring the use of equipment to the same level, because you will end up with negative results.
Another example might be different departmental risks and the number of accidents. The number of accidents is a simple metric, but the importance here is in the detail. If you measure an office against a manufacturing plant then the office is likely to always come out on top.
Why not measure the improvement over time as opposed to just total number. That way you see who is considering those preventative actions.
It might also be important to consider the significance of accidents, because little is likely to happen in an office vs a plant room. It might be that both departments have only 1 accident in a given time, but if one is a paper cut, vs the other being the loss of a finger - those are pretty different scenarios!
5. Enhanced Accountability and Motivation: KPIs create a sense of accountability among employees. When individuals have measurable targets to strive for, it increases motivation and encourages a results-oriented culture within the organisation.
Key tip: As noted above, if teams don’t understand the purpose, you may find it drives fear rather than productivity, especially when first introduced to an established, already well performing team. Let the team create the KPIs with you for the highest level of accountability and drive to their own desires to improve. It won’t be an overnight implementation, and you will need to invest time in this (we are always on hand to help too!)
Cons
1. Narrow Focus: Over-reliance on a limited set of KPIs can lead to a narrow focus on short-term objectives at the expense of long-term success. It is important to ensure that a holistic view of performance is maintained, considering non-financial aspects as well.
Key tip
What is the ultimate goal? Make sure everyone is clear on the goal, and how that breaks down into the objectives to be measured. What will be done with the results?
2. Subjectivity and Manipulation: The choice of KPIs can be subjective, and biased selection may lead to manipulation or distortion of results. Metrics that are easily influenced or gamed may not accurately reflect true performance.
Key tip: A negative manager may encourage people to hide information in order to show only the positive data. Culture is key and KPIs should not be used to drive a culture of fear. You will only find yourself with low performance and high turnover. Consider who sees your results. If you are trying to encourage competition, but you have a poor performer - that shouldn’t be public knowledge. Deal with it confidentially.
3. Negative Behavioral Impact: The implementation of KPIs may inadvertently encourage undesirable behaviors. Employees may prioritise meeting KPIs over other aspects of their job, leading to a decline in quality, teamwork, or innovation.
Key tip: This is the ultimate output of a lack of clarity over the use of KPIs and the behaviours of those that manage them. It’s been said already - get the team involved for natural evolution of KPIs.
4. Lack of Context: KPIs often provide a snapshot view without considering the underlying context. They may fail to capture the complexity and nuances of certain processes, leading to false data.
Key tip: If someone doesn’t understand the input, the output will be meaningless.
Example
Let’s say Jill in the quality department checks a document and make some comments for correction. The person reviewing those comments disagrees (lets call them Jack), but Jill has marked a deficiency against the document stating that is doesn’t comply. Why? Nobody knows. Jack thinks its Jill’s opinion, Jill stands by her opinion and refuses to change the finding in the system. Bang - you have a negative culture where teams work against each other.
How do you resolve this issue?
For every KPI someone has to be making sure the data is accurate. People need clear definition over how to mark something for the system to work. You get out what you put in. If what you put in is completely subjective then the output is pointless.
If outputs are negative, or there is disagreement you need a mechanism to allow Jack to raise that concern and a third party to conclude and correct (as well as prevent).
Question: - If Jill wasn’t recording a formal deficiency in the system against this, would Jack be bothered or would they just have had a conversation and worked it out between them?
Root causes
These are key. People need to understand what has led to this situation. In this case let’s say Jack raised a complaint about Jill. Management had to investigate. Turns out that Jill has no criteria when carrying out QC checks, so there is sometimes confusion over how to grade things. There are lots of categories and no explanations. This results in Jill raising a high number of deficiencies, and the staff are getting frustrated, because they also don’t understand.
They also don’t understand why Jill doesn’t just come and talk to them and ask questions before raising a findings.
Jack is now demotivated and Jill needs to be monitored closely. Why? Because there was no structure on how to report findings, and no process for QC to understand how to grade, nor for the correctors (Jack) to understand how something was graded.
Was all this worth managements time?
How many findings have they now got to go through to determine how many other mistakes there are?
Why was Jill not given a process? Why did Jill not ask for a process?
According to Jill she did ask for a process, but her Manager just talked things through with her. Why?
Because nobody had bought into the purpose of the KPI reporting. Before this people used to have conversations. QC knew where the issues were (its a small business), and the reporting was seen as something the C-Suite wanted to use to judge against.
The company were told they had to digitise so everything had to go through the software. Jill wanted to make sure she was doing as instructed so make sure every finding went through there. This created 3x the number of deficiencies, because in the majority of cases, Jill actually just need a question answered. Prior to the software, this would have been done on paper, and staff would have just come and approached Jill. But now there was a formal mark against them, they felt they also had to respond formally.
More time wasted, less motivated, confused employees doing work that doesn’t need to be done.
