Speak to any business mentor, coach, or professional accountant and they will all tell you that one of the most critical aspects to business success is having KPI’s, viz. Key Performance Indicators; and I would emphatically say that they are, in essence, correct. So what do I mean by “in essence”, well it’s like a lot of other business tools if used wisely they are a marvellous tool to keep you on the straight and true, but used unwisely they can actually expedite the demise of the business.
First of all they must be genuinely achievable. In the main it is human nature either to succeed or to achieve, so most people that are given a target will do what they can to achieve it, particularly if they perceive their job to be on the line should they fail. Regrettably this also brings into play a second human instinct which is to “fix” the problem somehow if they can’t do it the proper way and this has been more than amply demonstrated recently with the revelations by the Victoria Police Force in regards to ‘breath testing’, and CBA staff opening and closing children’s bank accounts just to prove that they met quotas.
If you are in business and your staff are reporting results that are not true, then you are operating and planning forward based on misleading data. Costings are one particular area where this becomes relevant, if your staff tell you they are doing ten an hour but only can actually do five then the allocation of labour cost, and possibly a lot of other costs will, in this case, be half as much as it should be, and you will actually be propelling your business into doom at twice the speed you thought you weren’t!
The next issue is that many targets become ‘set and forget’; they get set up at one point and are never reviewed. They don’t take into account a changing market, a changing work force and a myriad of other variables that need to be considered and reconsidered at regularly appropriate intervals, not so much monthly, but certainly no less than once a year. They don’t have to change, and they certainly don’t have to be automatically increased, but they do need to be reviewed.
However, above all else one of the most critical points is: “How truly relevant are the identified KPI’s to the success of my business?” There are many instances where KPI’s are set because:-
- “They’re industry standard aren’t they”
- “My accountant told me”
- “I know I can achieve this and that makes me look good”
- “I want to be the biggest”
- “This is something that sets us apart”
and the list can go on, and on, and on. Now some of these points are not necessarily wrong, but if that’s the only reason you are doing it then it can spell disaster.
There is no point in being the biggest if you are not profitable, and the appropriate risk quotient is not exceeded; there is no point in being set apart unless it is a proper commercial, technical or marketing advantage. To create such numbers do no more than make you feel good, and begin the process of rot within your organisation.
KPI’s must assist you to add value to your business and more broadly the community, even if those KPI’s are about minimising damage or harm.
Your KPI’s will also speak louder than anything else about your business. You can have all the most magnificent Mission Statements, Goals, Objectives and Value Statements on walls and published on the web that you like, but if your KPI’s drive profit for profits sake then the market will see just that, not the rest of what you have published… ask the banks!
KPI’s work at all levels, even within Governments, if you measure success based on punishment, then it first requires rules that make people guilty; on the other hand if you reward success then this is more likely to be the result. But then again law making is a whole other topic!
Remember your KPI’s are the central nervous system to your business, they tie everything else together, and make it all hum smoothly, and consequently, getting them wrong is terminal. It’s that simple.