The sense and nonsense of KPIs

KPIs. Every organization has to deal with them. By regularly checking your KPIs, you know how things stand and can intervene when needed. Or do you? Do the KPIs actually measure what they should? And can you even turn the right dials to make an impact on the KPIs? In this blog I'll tell you more about the sense and nonsense of KPIs and give you some tips on how to get it right.

A KPI for everyone

Steering an organization is no easy task. There are a lot of things to keep an eye on and to steer. Everyone finds certain things more or less interesting, and for a company to be successful, it's unavoidable that you also have to take responsibility for things you have a bit less natural affinity with. As your organization gets bigger, it only gets harder to keep an eye on all the important processes. To keep an overview without being a specialist in everything, many organizations therefore set up a set of KPIs to help them steer without having to be involved in the details of every process.

That's often already where things go wrong. Because which KPIs do you choose? And how do you want to steer with them? If you ask the specialists in your business processes to come up with indicators, there's a good chance you'll get steering information at a specialist level, with so much detail that you can't see the forest for the trees. If, on the other hand, you choose general company-level KPIs, you quickly end up with a set that's too general for anyone to feel responsible for.

Short and sweet

Actually, everyone wants to see something different. Because your organization consists of people with different responsibilities, qualities, and characters, that's actually quite logical. What's essential information for one person to steer by is noise on the line for another. We've all sat through a presentation from a manager or director who, with great conviction, tried to convince employees that figure A or B was essential for everyone to pay attention to, while a large part of the audience had no idea how they, in their daily work, were even supposed to influence that figure.

Everyone or no one

KPIs aren't for the whole organization. And KPIs that are about the whole organization are only relevant for the board. As soon as you bring your "broad" KPIs further down in the organization, that figure is not, or only partly, a reflection of their responsibility, and its relevance to the recipient decreases. Where "everyone" is responsible, no one feels that they are.

Less is more

The solution is simple: reduce the amount of information. By giving each department the KPIs that belong to their processes, you make sure the responsibility lies with those who have influence over the result, and that they can actually steer using the information from their KPIs.

The downside of this approach is obvious: before you know it, you've created a jungle of KPIs, and as management you're once again looking at unimportant details in far too many subprocesses. This is where technology can make the difference: by setting up a set of dashboards and filters on your data, you can keep such a KPI landscape manageable and organized, and, more importantly: you make sure everyone is looking at the same data. This way you can report department A's revenue to department A, and department B's revenue to department B, while the board sees the combined revenue of departments A and B one level up. Your main challenge here then lies more in choosing what you don't want to see, rather than trying to explain to everyone that their results really do count toward the overall figure too.

Measuring what you need

During that exercise, it's also important to think about what you really need. Many of the KPIs we look at do give us results, but don't help us make a decision at all. So think not only about what information you need, but also about what you can actually do based on that information. And especially the closer you get to operational processes, that distinction is very important to make.

It can sometimes be quite uncomfortable to realize that you actually have no direct influence on that figure you've been chasing for years. But by focusing on what you can influence, you at least make sure you put your energy into the processes where your contribution is noticeable.

Influenceable

When redesigning your KPI set, this is often also the most important eye-opener: by critically examining the organization's report figures, you discover that a large part of the figures you were looking at can't actually be influenced, or are merely a result of the processes you do have influence over. The value of such a setup doesn't lie in the specific KPIs, but in shaping the coherence with which you contribute to your business goal. This way you get KPIs you can actually steer your business with, and you can spend your energy again where you make the difference.

Written by Louis de Roo
Data Strategy Leader
E-mergo