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5 pitfalls with KPIs for your organization
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5 pitfalls with KPIs for your organization

High work load? Buy a robot!

KPIs (Key Performance Indicators) promise organizations to perform better. However, in practice, they often fall short KPIs (Key Performance Indicators) promise organizations to perform better. However, in practice, they often fall short. As a result, the workload increases in education and other sectors. In my latest book, ‘Winning with the right KPIs,’ I discuss the five most important pitfalls and how to do it right.

1. Translate KPIs functionally to the work floor

When the organizational chart is taken as a starting point, which happens in most organizations that adopt KPIs, it stimulates silo thinking. There is a high chance that KPIs for different roles are contradictory, and each department focuses on its own results. Each role does what it is supposed to do (often not more), and collaboration with other roles is not encouraged.

This phenomenon occurred, for example, at a large retailer. This organization wants to sell “no” less often. After all, empty store shelves lead to lost sales. The retailer fails to reduce the percentage of ‘no’ sales to shoppers, causing the organization to lose a lot of money. The root cause is the functional translation of KPIs to various departments. In this organization, the Purchasing Department determines what items are on the shelves and at what price. They select the right suppliers for this purpose.

Stores are responsible for hospitality and service. They must maintain their own store inventory. To do this, they place orders with Logistics, which is responsible for replenishing store inventory. This can be done in two ways: directly from their own warehouse or through direct deliveries by the supplier. The latter takes longer, but is cheaper for the Logistics department. After all, it saves inventory (costs) and labor costs in the warehouse. The main performance indicator of the Logistics department is focused on reducing costs. You understand the choice this department will make. The store is more often left with empty shelves and the customer is screwed (and so, ultimately, is the organization itself).

The responsibility for developing KPIs is usually placed on the person in charge of finance – he or she was into numbers anyway.

Peter Geelen – iPM Partners

2. Link KPIs to the planning & control cycle

The responsibility for developing KPIs is usually placed on the person in charge of finance – he or she was into numbers anyway. This then often leads to strong integration with the monthly planning & control cycle. However, the frequency of this cycle does not or hardly match the different, often faster, frequencies that the processes on the workplace have. Adjustments must be made at the time they are needed, not just when a consultation is on the agenda.

Instead, take customer chains as a guiding principle. Every organization has customer chains (even if they often go unrecognized). They are the journeys customers take through your organization. It starts with the question and ends with filling the customer’s need. For example, from order to delivery, from complaint to solution or from illness to cure. By making customer chains central to the design of your KPI structure, you can now factor in the differences in dynamics of those customer chains. You adjust your frequency to the number of events that occur in a customer chain.

3. Setting up too many goals and KPIs

At the management team level, too many objectives and KPIs are named. When these are then translated into derived goals and KPIs for departments and employees, an overload of information is created. The focus needed for an organizational strategy disappears.

At the fictional eHomes, the case in my book, a company that enables smart homes, they are suffering a Colossal Performance Infarction. Hans, the sales manager, complains that his account managers do not have the right commercial tools to sell the company’s new solutions. ‘My people are driven by the number of visits, but I seriously question the quality of the conversation. Do they know exactly what our new solutions have to offer? And how does Marketing help us? They are only concerned with the new website.’

4. Missing the connection between KPIs and not visualizing performance correctly

By including KPIs in the monthly report (preferably in a table with colors that signal unwanted deviations), much information is lost. The relationship between KPIs is not clear and whether performance is lagging or ahead remains shrouded in mystery. Visualization of performance has a lot of influence on the behavior of employees and teams. By including the information in the monthly report, in a fixed structure, that needed visualization is lost. KPI scores are measured against a norm, and if there is an undesirable deviation, questions are asked. KPI visualizations should indicate where the shoe pinches so that it leads directly to action. 

5. Discuss KPIs in isolation (per island)

If control via KPIs is set up functionally, performance will be discussed on an island-by-island basis. Of course, in the management team these insights come together, but because everyone “only” knows their (island) part of the puzzle, team members are not fully informed. Defensive behavior ensues with each management team member explaining why it is because of the other department. In the performance discussion with executives reporting to the management team, a sense of accountability arises above all. The same ritual takes place every month, with everyone defending his or her KPIs, under the motto: “My departmental KPIs are going well, so I have nothing to blame.

To achieve better results, organizations will need to establish a Performance Review structure that allows employees and departments to work better together. A structure where we talk to each other about performance instead of about each other.

By falling into these traps every time, organizations unnecessarily miss many opportunities to improve their results. The impact of incorrectly implemented KPIs is huge. Things can be so much better, but then organizations must learn to work with KPIs in a different way.

You can read more about the successful use of KPIs in my book, in collaboration with Luc van Sas, Winning with the right KPIs.

Back to the overview

Winning with the right KPIs

From strategy to execution; how key performance indicators can help your organization.

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