The Relevance of Choosing the Right KPIs
“If you can’t measure it, you can’t manage it”
Measuring the performance of an organization at regular intervals helps in tracking goals and attaining the desired results. KPI, a tool that measures and analyses the overall performance of a department or company, plays a major role in determining the success of a firm. KPIs aid in evaluating the health of your business; whether it is moving forward or backward.
KPIs help in,
- Tracking the progress of the company
- Reviewing performance of employees
- Boosting morale
- Envisioning the future of business
- Earlier problem spotting
Performance management is no more optional; it has turned out to be a mandatory element. Unlike in the past, when managers used to conduct annual meeting with employees, evaluating previous year’s results and discussing about 12 months of work in advance, the system has pulled a 180. Today’s managers recognize the power of performance management, how it can strengthen a company and motivate its employees.
An effective performance management system must be fair, ongoing, carefully documented and aligned with organizational culture and values.
The various departments within an organisation use diverse KPIs, contingent on the specific goals and target of that particular department. Cascading KPIs across the organization, from strategic level to departmental level and finally, to individual level, adds value to the company. The employees will have a precise understanding of their individual contribution to the performance of the company, which can result in increased employee engagement levels. Measuring and rewarding the efforts of employees on a continuous basis, enhances their morality, overall productivity and creates a sense of loyalty.
Regular communication, that includes feedback and guidance, between the employee and management is a must. Timely, specific feedback provide employees with better clarity on their responsibilities.
How ‘Wrong KPIs’ can Turn out to be Toxic
Choosing the right KPIs for your business is crucial as wrong KPIs are costly and can be detrimental. Poorly defined KPIs that does not align with business goals can do more harm than good. This can be better explained with the example of the Wells Fargo scandal, an incident that shed light on the consequences wrong KPIs can cause to business.
Wells Fargo, one of the largest banks in USA, was fined US$185m by the financial services Consumer Protection Bureau, for their ‘brilliant’ strategy. They defined a KPI on cross-selling, with extremely unrealistic sales targets imposed on employees. Employees were burdened with the task of selling at least 8 accounts to every customer and the result was 2 million fake accounts! What started off with a brilliant strategy resulted in a disastrous one.
KPI loses its essence if it transforms from a measure to a target. Rather than chasing numbers, KPIs should target on enhancing the performance at various levels. Overloading of KPIs is another issue, which arises from the mindset that more KPIs equate to better performance. KPIs in excess will diminish the meaning of the term ‘key’ and they become mere performance indicators.
KPIs have game changing potential if deployed properly and can reward a business with useful insights and guidance. They are the reflection of your business in the mirror that enables you to understand whether your organization is on the right track towards its objectives.
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