Measure to manage with KPI's

Have you heard of analysis paralysis? Being efficient doesn't guarantee to be effective. This is especially true when analyzing data to keep employees on track toward achieving their goals. Let me illustrate this point by sharing a case study from a successful client regarding their use of KPIs.

A company in the services industry recently retained me to help them design an incentive program for their 80 professional engineers plus eight support staff. The company was traditionally profitable, generating positive cash flow. However, the owner was concerned with increasing costs and high employee attrition.                                                                                                                          When commencing the project, they used…wait for it….52 KPI's.                          When I asked the owner and his executive team to explain the usefulness of each of the KPI's, they seemed to find a logical explanation for each of them.

When I asked those folk to explain how the KPI's moved the profit or cash flow needle, they looked at me like a deer in the headlights. In other words, they were examining the metrics in isolation without context. Not everything interesting is useful!

The owner was also surprised to learn that many of his people were resistant to updating the data each week and felt that the job was an unnecessary chore that invaded a significant amount of their production time, impacting their performance measured by billable hours.                                                                  When we reached the end of the project, we had established just three primary KPIs and six secondary KPIs. They agreed that the rest of the KPI's were useless and didn't influence employee performance.

Key takeaways from this project                                                                        Compliant versus conformity                                                                        Conformance is voluntary adherence to a rule or requirement, whereas compliance is forced adherence to a rule or requirement.

In the absence of explaining the logic and usefulness of the KPI, those who have to collect the data to support the KPI will usually be compliant performing the task under duress.                                                                                                           The result? People tend to either not complete the data or, in some cases, even fudge the numbers.

Key takeaways:                                                                                                                     1. Consider creating primary and secondary KPIs. E.g., Gross Profit Margin or EBITDA could be considered primary, and revenues per person may be a secondary KPI.                                                                                                                      2. Not everything interesting is useful. Rethink its usefulness if the KPI doesn't help move the profit or cash flow needle.                                                                               3. Sometimes less is more (be aware of analysis paralysis).                                     4. Perform a deprivation test to evaluate the effectiveness of your KPI's. i.e., ask your people what will happen if you DON'T measure a particular KPI.                      5. Consider connecting your KPIs to your bonus and incentive program. (WIFM – What's In It For Me).

Summary. It is prudent to continuously reevaluate the value of your KPI's, the objective of which is to keep your people on track toward achieving business objectives. Ensure that you communicate the value and logic of your KPI's by engaging your employees regarding the sense and usefulness of your metrics. Where possible, tie the KPI's to your incentive program.   

Managing Expectations
Get your employees thinking and acting like owners.