The most common term for performance measurement is Key Performance Indicators (KPIs) and here are 10 common mistakes.
Mistake 1 – Not linking KPIs to your strategy
KPIs are only really useful if they are aligned to your strategy and inform strategic decision making. Anything else is just window dressing.
When KPIs are not linked to your strategy, you’re wasting huge amounts of time and money collecting information that is not going to benefit the business.
Mistake 2 – Measuring everything that is easy to measure
There is a difference between whether something can be measured and whether it should be measured. One of the biggest mistakes that people make with KPIs is measuring everything that is easy to measure, regardless of its relevance to the business.
Mistake 3 – Measuring everything that walks and moves
There is also a temptation to measure everything that walks and moves – the assumption being that lots of information is better than no information.
However, having too much information can be as useless as too little. And it can be downright damaging to the business, wasting time, money and attention that could be better spent elsewhere.
Mistake 4 – Collecting the same measures as everyone else
Another big error people make is developing their KPIs by looking at what everyone else is measuring.
A business leader may decide that KPIs are something they really needs to take seriously but, rather than work out what information is really needed, they look at competitor businesses or perhaps discuss KPIs with other senior executives and gather a list of KPIs that everyone else is using.
Mistake 5 – Not separating strategic KPIs from other data
There is no shortage of data and information inside most businesses, ranging from financial and sales to customer and compliance data. However, the problem is that, too often, all the KPIs are lumped together in one long KPI report or indecipherable dashboard.
Business leaders and decision makers are time-poor; they don’t want to have to wade through pages and pages of KPIs to ferret out the really critical ones. As a result, the ones that could really direct strategy and inform decision making are lost in a sea of irrelevant information.
Mistake 6 – Linking KPIs to incentives
Linking KPIs to incentives (such as a bonus or pay rise) is really dangerous in business because it so easily creates unintended consequences.
The true purpose of a KPI is to help people inside the business know where they are in relation to where they want to be. They act like a compass on a sea voyage. But, once those KPIs are linked to incentives, they stop being a navigation tool and become a target an individual has to hit to secure their bonus. And, as soon as that happens, the individuals involved can become very creative in how they can manipulate the information or their behaviour to ensure they receive the incentive.
Mistake 7 – Not involving executives in KPI selection
Most senior executives work on the strategy but then delegate the process of designing the right KPIs to someone else.
This is a mistake. Senior executives must be involved in the KPI decision-making process otherwise they will not feel ownership of what is created. And if they don’t feel ownership of the KPIs, they won’t use them. It’s very important that the senior team think about the KPIs, engage with the questions they are seeking answers to and sign off the chosen KPIs.
Mistake 8 – Not analysing your KPIs to extract insights
Another common mistake with KPIs is that no one inside the business is really analysing the data to extract business-relevant insights. No one is working out how the data relates to corporate or industry benchmarks, or how the metric has changed over time and what that might mean for the business.
Mistake 9 – Not challenging and updating your KPIs
Once the right KPIs have been identified or designed, they are often never questioned or challenged in terms of whether they remain relevant, linked to strategy or continue to help the business answer critical questions. It is important to make sure that you are always collecting the right data, collecting it often enough and are using what you collect.
This means you mustn’t be afraid to challenge your KPIs. If you don’t, KPIs can easily become a “tick box” exercise that allow managers to say they have them, rather than being a real-time navigation tool that leads to better outcomes and performance.
Mistake 10 – Not acting on your KPIs
KPIs can shape strategy and inform fact-based decision making inside businesses – but only if those inside the business act on them. In the end, it doesn’t matter how brilliantly you’ve aligned your KPIs to your strategy, or even how brilliantly you have captured and presented the relevant KPIs, if they aren’t used to inform your decisions and drive performance, then you are wasting your time and effort.
A well-designed set of KPIs should provide a clear indication of current levels of performance and help your people make better decisions that bring the business closer to achieving its strategic objectives. If you’d like some input with KPIs get in touch and book a meeting.
Image from Flickr by Kleneway1379.