The concept of KPIs causing inappropriate and unintended consequences has become almost a management cliché (1). Numerous examples include emergency department waiting times, school performance assessments and metrics around customer complaint handling. They drive behaviours that were unexpected. The view that they create truly unintended consequences is, however, somewhat naïve. Often the target’s intention is neither “clear... reasonable and shared by all.” (1) Often leaders are fully aware that actions, ones not in keeping with the metric’s spirit, will take place to ensure the target is met. This is especially the case where career reward or remuneration is linked to performance against the target. People are only human after all. 

Sadly, there is limited evidence that performance indicators drive real improvements, a phenomenon that some have called the “Performance Paradox.” (2), which is a double-whammy, as managers chase targets, targets that have little or no impact on business performance.

 

One of the consistent failings is measuring things that have happened eg: time spent on activities, rather than outcome. Why do we do this ? Because it gives the illusion of control. And anyway, we like to measure things that are easy to measure. We forget that we should be measuring the outcomes we want. Even measuring internal outcomes, such as completion of production orders falls short of the mark, one we should really be aiming for ie: satisfying the customer. In truth, customers care little beyond that their product or service meets their expectations at a price that they feel is value for money. Internal targets can create suboptimal performance and are often “ local objectives by managers, at the expense of the organisation as a whole. “ (3). The question at the front-and-centre when KPIs are being devised should be:- How is this connected with what the business and ultimately my customer wants ? Anything other than this is a distraction, competes for resources and I’ll say again gives only an illusion of control. 

The third failing around setting KPIs is setting targets that are far too easy to achieve. This causes two problems. Firstly, it makes the business look more successful than it is and secondly it stifles continuous improvement. Why should I improve, when all my KPIs are green ? This is known as the “ Deliberate Performance Paradox “ where easy targets hide poor performance (1). So why do we do this ? The main reason again is it gives a false sense of comfort that we are in control. In addition, who wants to explain red metrics to either senior management or an outside body assessing us ? The consequence is the business languishes in a backwater of mediocrity, rather than has KPIs that are red but ambitious, are moving in a positive direction and driving true continuous improvement.  

The fourth failing is we simply have too many targets, with each function having its own elaborate Scorecard. Firstly, this causes confusion on what measures are the ones that we need to really focus on. We fail to see the wood for the trees – or more often than not just plant more trees. Secondly there will always be KPIs that are in conflict eg: cost and quality. With a myriad of scorecards, it becomes an impossible process to manage for a leader.  

 

In truth no business is successful through the direct actions of its leaders and managers alone, despite what they may think to the contrary. It happens through the thousands of day-to-day actions of all employees within the company. If we have KPIs that are crucial to the success we should be shouting these from the roof-tops ! How often do we see managers lovingly compiling monthly scorecards that never see the light of day, unnoticed by senior leadership ? This perpetuates the view these metrics are unimportant and sadly they probably are. Great leaders articulate their KPIs to all of the company and more importantly explain how the actions of everybody in the organisation can directly contribute to them and the success of the business.

So back to Deming, why wasn’t he too keen on performance targets ? One of the main reasons is no numerical goal ever told anyone how they could do their job better. Another reason again is around how goals translate into behaviours. Take a team that is assessed on average performance against a target. Peer pressure will encourage the top performers to meet the target, compensating for those that are either unable or unwilling to put in the energy to meet the challenge ie: it can create real difficulties when managing teams and that’s what your organisation really is, a big team.

In summary, the idea that all KPIs are pointless is a difficult, often heretical concept to accept. But I would say, choose wisely. If you think hard about the behaviours you want to encourage, link them to the outputs you desire, and they are limited in number they can be impactful tools helping make your organisation successful. But make sure that all individuals know how their work contributes to success. And for heaven's sake, make them Red !

(1) Daheler-Larsen, P (2014) Constitutive Effects of Performance Indicators – Getting beyond unintended consequences. Public Management Review 16, No. 7, 969-986.

(2) Van Thiel, S and Leeuw, F. (2002) The Performance Paradox in the Public Sector Public Performance & Management Review 22, No. 3, 267-281

(3) Smith, P. 1995 On the unintended consequences of publishing performance data in the public sector. International Journal of Public Administration 18, 277-310

©Datod Consulting (2019)