CMI (Jermaine Haughton): No matter the industry, it is clear that with every management decision there is a measure of risk attached, and the use of KPIs to harvest empirical evidence of leadership effectiveness provides a solid basis for bosses to make, and then justify, their choices. However, some management thinkers have warned that certain uses of KPIs can do more harm than good. Here are five examples of how NOT to handle the numbers…
1. USING KPIS AS TARGETS NOT MEASURES
An obsession with KPIs can often blur managers’ thought processes, making them forget that the stats should exist to measure performance in a specific division, or track a problematic issue within a firm. KPIs have become popular among bosses because they provide objective data that can help inform decision making – particularly on complex matters. However, according to Big Data expert Bernard Marr, if KPIs become goals, they will turn into toxic material and inhibit performance improvement. Using the example of a Russian nail factory, he explained: “When the government centrally planned the economy it created targets of output for the factory, measured in weight. The result was that the factory produced a small number of very heavy nails. Obviously, people in Russia didn’t just need massively big nails so the target was changed to the amount of nails the factory had to produce. As a consequence, the nail factory produced a massive amount of only tiny nails.”
2. HAVING TOO MANY KPIS
Whether the data is crunched by hand or by software, KPIs can take time to collate – especially if a company has a number of indicators running at the same time. Overdoing measurement criteria can result in analysts having a large amount of information to sift through, which in some cases may no longer be relevant – wasting valuable time and money. Lean-manufacturing expert Christoph Roser, professor of production management at Karlsruhe University of Applied Sciences said: “One example I have seen measured a total of 45 logistics KPIs for one plant, half of which were measured daily. This took over two hours every day. My guess is that nobody looks at 45 KPIs, and this is just information overload. Hence, two hours wasted every day for something nobody looks at?”
3. WRONGFUL MANIPULATION
As Mark Twain had it, “there are three kinds of lies: lies, damned lies and statistics” – and unscrupulous bosses will be tempted to skew KPI data to their own needs. As Professor Roser added, managers who are eager to portray themselves as complying with certain regulatory targets can use a range of calculation methods to get the maximum KPI out of any given system, spurring behaviour which could be harmful to their companies ethics and reputation.
4. STRETCHING KPIS TOO THINLY ACROSS BIG DECISIONS
While using indicators to track the sales of a retail item, for example, can be useful and harmless, applying them to major social and political decisions in public-sector organisations can be damaging. Following a series of child protection scandals in Victoria, Australia, columnist Paul Barratt argued that KPIs have no place in the public sector. “KPIs are also an open invitation to game the system,” he wrote. “Tell a manager that what is required for performance pay or for promotion is to meet certain numerical targets and they will be met, by a combination of concentrating on the easier cases and fudging the figures. There is money and position at stake, and people will duck, weave, dissemble and tell outright lies in order to establish that they have met their KPIs.”
5. NOT INVOLVING THE PEOPLE WHO ARE AFFECTED BY KPIS
Even a boss committed to rigorous standards of openness and honesty can quickly forget those values when it comes to KPIs by failing to factor in the affected staff. Business analyst Jeffrey Davidson explained that managers should use indicators as a means of engaging with employees, and should never be used as a “substitute for getting to know your people, their challenges, their needs, and their successes”.