All you have to understand about Key Performance Indicators (KPIs)
It is important to understand what Key Performance Indicator (KPIs) is. It is one of those topics that has been so widely written about and discussed in management circles that most people think, “they have it covered”. Like most familiar things, this familiarity can breed contempt – and result in critical errors when it comes to KPIs implementation.
There is a lot about KPIs that most people don’t know yet they think they have got everything on their fingertips. Theoretically, every business understands and is perfectly implementing their strategies accordingly but the drama began when they start evaluating. It is not that your KPIs are not working, it means it is doing what you are not intending it to do. It’s not measuring the communicated strategic objective. This has left the many businesses asking whether KPIs is important or just fake indicator that people pretend to be using.
Are KPIs Effective?
Talking of KPIs' effectiveness depends on your perspective. First, let me pose this question of what are KPIs effectiveness descriptors. I will say that my KPI is effective if it is linked with my strategy. I mean when what is communicated in the strategy formulation and implementation has been achieved. Remember this is an indicator and therefore it’s meant to provide analyzed statistical Data that you can interpret and relate to the attaining of this core objective. When I designed my KPIs, I must have had in mind why and what for? Therefore, for it to be effective in my perspective it should then be answering the two questions above (why and what for).
Now you have got a clue about knowing if it's effective, you should watch it. Be careful of its relevancy and uselessness. Once it works well do not sit back and relax, there are several factors and mistakes in between. You can easily get lost even if you have been doing right. The point is to keep tracking its relevancy to the changes in your organization.
I know most of you have tried and tried with no success. The answer to the very many questions people asked when their KPIs are struggling in business is answered as you don’t understand why it’s failing. Before solving a problem lets understand what the problem is and why it occurs. The problem is neither with the strategy nor KPIs nor you…. It’s that mutual relationship between the designed KPIs and your strategy. When you talk of relationship I mean how related your KPIs to your strategy. Is it measuring the right measure in the strategy? If you are not careful about this then you will end up pouring all your resources to ineffective KPIs.
How do KPIs become Irrelevant ?
Several aspects affect the effectiveness of your KPIs, it all starts from the drawing board. Starting from KPIs formulation, linking with your strategy to communicating with your employees, implementing, reviewing, and updating. Failing to address this will render you KPIs useless. Although using the word useless does not bring the right meaning I prefer to say ineffective. If the KPIs are not addressing what you desire or what you expect is not what the KPIs give. These are the common mistakes that occur in our businesses and affect KPIs negatively. Below are the reasons why your KPIs are ineffective;
The Irrelevancy of KPIs to your strategy
Like it is well said, ‘information is power’ in a business world it is a fact that everyone should watch. Just imagine someone implementing KPI which is not aligned with your strategies? Having your KPI linked with your strategy ensures that every single resource you invest, time and any other effort you make towards collecting information, developing and implementing these is worth it.
It's as important as any other aspect in your business to understand and select the relevant KPIs. The KPIs that will deliver key-critical indicators related to the business. Remember it's all about relevancy and ability to relate the findings with your key objectives. It’s a big mistake if the mission statement and what you are implementing do not go together. The whole thing (KPIs) will be a mess.
It's the best to be unique but more often we do bench-making which is good but most people do not exercise it fully they seem to copy-paste when it comes to what to measure. You find them that they do what their competitors do and end up rendering their KPIs useless.
The greatest mistake we do is that we develop KPIs in line with our strategies, then we mess and measure what others measure which is wrong. We should go with our strategy, implement it to see how it works measure those descriptors relevant to our strategy and be unique. Be the first right person on that course of action.
Being outstanding in your way will get you in the right direction. You need to think which information you need in decision-making, not everything the competitor uses is worth, get them (information) and get you KPIs on course. Let your strategy guide you on what to measure.
Avoid Generalization, Be specific
The easy way is not the solution in any business. It's human nature in any trying times to find an easy way; KPIs are just indicators, a simple and silent driver that tells if you are going the right direction. Measuring performance is a wider and critical aspect that needs in-depth analysis, becoming shallow and measuring everything is a big mess.
Get out and concentrate on what you want, don't just be general. Being specific gives the right and precise measure as opposed to just measuring easy things. Ask you self is this worth to measure, unfortunately, most business measure everything measurable and this is the biggest mistake. You are investing in what is irrelevant and worthless. The answer to pull yourself out is, is it worth measuring?
Being a realist
The desire and passion to succeed is indeed a driver and spirit in any quest. Sometimes this gets out of hand and becomes an obsession. When it takes over you lose what is right and do the wrong thing or spend all the time and resources doing almost what is not necessary. You go around and measure everything. This will exhaust you and in the end, you fail. They are meant for key performance which impacts greatly on the whole achievement of your business. When you lose the course of what is the objective, you do everything, definitely, you are misguided and therefore you will fail to focus on what is important (objective).
Have specific KPIs data analysis.
Being mixed up brings confusion and therefore a lot will go wrong if a quick response is not taken. Mostly when things go wrong we give in or let go and start pointing fingers. Draw a line on what are Strategic KPIs and other data. In business, there are many aspects you analyze. Distinguish between performance analysis and general data. Having all mixed-up you can easily get lost between the shuffled card and end up using wrong information on the decision-making process.
One way of ensuring that you get the best is by separating the KPIs data so that when making decisions you use the right information making the whole process effective and efficient.
Doing one thing at a time while you keep up with your time frame is a success. Most people mix up things such that in the end, you cannot tie any success or failure to a specific variable. You should be able to know the performing and under-performing areas.
You find that you are evaluating employee performance and at the same time you provide them with incentives and bonuses. This will affect the outcome and therefore you should focus on evaluating the performance to make the decision of increments or offering incentives and bonuses. In other words, keep the rest of the factor at constant for you to get the right information. KPIs Data analysis should be direct and indicate exactly what you are trying to evaluate having other constant affecting the outcome will force you KPIs to be general and ineffective.
Linking KPIs to incentives such as a bonus or pay rise is really dangerous, it creates unintended consequences. Its purpose is to help people inside the business know where they are to where they want to be. It tells whether you are following the bearing in the drawing board. Remember you are implementing a strategy and therefore you are evaluating to know if you are in the right direction.
There is success in teamwork
To realize a success you have to incorporate all the subsystems in the whole system. Each individual in the system is crucial to the overall success; they combine efforts to contribute to the achievement of the main objective.
First, communicate the main objective of the business let every employee understand in broad the goals. Provide all the needed information. Let them feel they are part of the business and they will take responsibility for the outcome. KPIs always become useless because the implementation team has no clue of what and where they are heading.
They will not have any link between the strategy and KPIs and therefore they will be lost and so will KPIs. They will not even know what the KPIs metric is trying to solve.
Stick to your KPIs extract insights
It is human nature always to sometimes analyze what they want or what is eye-catching. That is wrong you should extra data meant for what you are evaluating. The worst part is that in every business as long as things seem good, no one seems to bother. They have no time to do data analysis on the relationship between the corporate strategy and the designed KPIs or the changes on metric and it is dangerous to the business
Reviewing 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 in answering the critical questions. It is important to make sure that you are always collecting the right data frequently enough and utilize what you collect.
Like strategic review, KPIs need review and updating. I tell you everything becomes obsolete and so is KPIs, evaluating KPI and updating whenever it becomes irrelevant is a necessary evil. Fail to do this and the whole place will be messy. It is important to always have the right and up to date information for you to be competitive. You will never be a leader if you wait for others to show you the way, be a risk-taker. Do right again and again and you will be ahead always.
The one thing most people are afraid of is challenging their KPIs, once it proves to be efficient and effective they are satisfied until all is lost. Don't wait until you fall apart so that you start regrouping. It is costly and therefore, be informed. Invest in review and updating and all will be well. It will help you evaluate your KPIs if it is measuring what you intend to measure, and through this, you will be sticking to your strategy.
Know your objectives
As much as KPIs is an indicator, it can shape your strategy and aid in making an informed decision in your business. In the end, most do think of how brilliant KPIs were aligned with the strategy but, the fact is that the players in the game played well with your KPIs. The captured the essence of the KPIs and utilize it as intended.
It is the strategic performance you are working for and therefore having a well-designed set of KPIs tunes you. It will guide you by indicating the progress and informing how well you are driving towards that milestone. It gives you level by level indication of how you are doing; in fact, it gives you how fast you are against the time.
These are mistakes which businesses make and mostly end up pointing finger on KPIs . The problem is not the KPIs , it is with implementing it. It is then essential to ensure that all the people in the business are well informed with the strategy and the intent of the KIPs. Sometimes the people analyzing the data, KPIs designers, the lower level implementing the strategy and KPIs are not focused on one agenda. This will mislead the decision-maker using the data.
This means the designed KIPs, is messed by the analyzed data. The implementation is then to hell because they are implementing the wrong strategy against different designed KPIs hence such mess.
How to right the wrongs
You will be surprised by what everyone thinks; the way to right those mistakes is by quitting the KPIs . I strongly hold a different answer to that. First, every failure is worth it. We indeed learn from our past mistakes. It is these mistakes that make you stronger and prepare for whatever may come along.
Although failure may hit you hard to attempt quitting, you should always know that there is no easy way until you face it. Allow me to take you deeper into how you will deal with these mistakes and get your business to the top again. First, since every single mistake you do is highlighted above I will not give you a way out on every mess.
- Understand the mistakes - Like Sun Tzu said, ‘know thy enemy well.” Let me borrow this to try and equip you with this ideological tool. Think of these failures as an enemy to your business. It is killing you and in general perspective, you won’t want to die so you fight to live. Therefore, let’s fight this enemy by understanding it. Before you say KPIs is not working or has failed to check on your systems; does everyone in your business understand the strategic objective? How well have you incorporated them into this business? Are they doing what the KPI is intending? When all this is answered you are in a better place to bounce back.
- Do what is relevant - Another aspect I would like to talk about as a solution to dealing with this is the relevancy of your KPIs to the Strategy. For you to use the KPIs data analysis you must understand how to relate your business to the designed KPIs. Think of it like you want to travel from the UK to the USA and the means of transportation is water and you have to be there in a day! The little mistakes we make in business all ways escalate to such an impossible scenario. Try and design your KPIs in line with your Strategy.
- Communicate Core-objective well - Everyone will agree that giving your car to someone who has never driven before will crash. But when it comes to the business they will make such assumptions and hand over their keys to crash their car. This is why you KPIs fails, we fail to communicate the strategy core objectives and the intents of KPIs. Do this and everyone will have an easy task in the overall achievement. The top management will be designing and the lower level will be implementing it yet there is no mutual understanding between them.
- Know what to analyze - This is a carelessness bond mistake that is easy to solve. Given raw data and you have designed a killer KPIs, all you fail to do is looking for the right data. Looking for what is relevant to evaluate. Hit the right button and you have everything. This is where all decisions are made from, provide the right relevant information and you are done. Think of what will happen when you get it all wrong on the start? You will be working in the dark part until you hit the wall.
- Stop Copy Pasting - It is a common mistake that comes with bench-making, I am not saying benchmarking is wrong but what we learn define how you will shape your strategy. Remember what works for me does not apply to you. You have the best strategy for your business and a killer KPIs but you go around having a meeting on what to measure and end up copying what others measure. Stick to your strategy and what KPIs intent and you will become outstanding.
- Time bond - Achievable goals are motivating than climbing a mountain without a ladder. Remember strategic fit is what you need and you don’t have to strain to be seen you are doing something. Work on your limits and be content with what you can do as long as it is what in your strategy. Do not drain your resource on something impossible, just work on your league find a way to upgrade it with time and everyone will give their best to excel. It is quite interesting and motivating when you are meeting your target but frustrating when you don't achieve it.
- Do it right always - Now that you are on the course it is not enough. Keep sailing in that right direction. Do a constant review of your strategy and KPIs. These two are bonded and whenever one fails it will result in a negative impact.
- It’s never too late - You cannot have a very killer KPIs and your strategy is pathetic, this is not going to work and you will be banging your head on the world with no solution. Go back to the drawing board and start it up there is no bad KPIs. You are never late. By doing this, you will regain the lost glory and get back like never. It seems hard when all piles on you. Now I have shade some light it is time to get back to the drawing board review where it all went wrong get it going and you will be rejoicing again.
In conclusion, every business needs a perfect strategy to achieve its goals and objective. KPI is the right tool which every professional in a business enterprise should implement for better tracking of the business' progress.