[Note from the editor: This is the fourth in our series of BI-focused blog posts. Thanks again to Bob Johansen for sharing his expertise as the head of the Deltek BI Affinity group. If you want to learn more about Vision Performance Management, get a personal demo at Insight in the Expo Hall, register for a live demonstration/Q&A or register for this whitepaper.]
Key Performance Indicators (KPIs) are metrics that are used to judge how much progress is being made toward a goal. These things are similar in concept to a fuel gauge in your car. It lets you know how much fuel you have left before you have to fill up again. Whether you realize it or not, we live in a world saturated with KPIs. Our daily lives are full of things we are measuring: how long things take to complete, our weight, and how much money we have in our checkbooks. Our corporate lives are no different. Numbers and targets are everywhere.
When thinking about what I should write about for this post, I thought of the many things that are attached to our understanding of KPIs. Sometimes our hopes and dreams are tied up in them. Other times, our business efficiency and potential profitability are on the line. This post will help you wade through the myths and help you understand what KPIs are really saying.
Myth One – If 5 KPIs are good, 10 KPIs are better
The truth is that most companies are drowning in metrics. It is much better to have a small number of KPIs that will really influence your business and provide the information you need to steer the ship and tell when you’ve gone into dangerous waters. Do not be tempted to create a KPI for every little thing you want to improve in your business. Yes, every business has room for improvement, but trying to measure and report on 75 different things just waters down the overall movement toward improvement. If you have 75 things that are important, then nothing is important. Boil it all down to a critical few that you can rely on.
Myth Two – Using KPIs will drive good behaviors
While a true statement for correct use of KPIs, many companies are using them so badly that they are leading to un-intended behaviors. A good KPI strategy will set parameters of success. If the metric you are measuring falls outside of the parameters, you want to be alerted (as in the low fuel light that pops up on the dashboard of your Toyota). Lack of a solid strategy is one thing that will only confuse your folks about what you think is important.
Myth Three – Your performance dashboard is all you need
When confronted with people who just want to sit in their offices and stare at their dashboard, I tell them one thing, “You cannot automate leadership.” There is no substitute for creating a solid business strategy and holding people accountable for hitting their numbers. For painting a vision for the future and setting good policy. For rewarding right and punishing wrong. A good captain knows how to steer clear of the rocks and where to make port in a storm.
Myth Four – Embarking on a KPI initiative is expensive and takes a long time
Not true! Although there are plenty of consultants out there who will spend your money, implementing some KPIs for your organization does not have to be expensive. Plenty of companies start by tracking a few metrics every month using Excel to determine if they are going in the right direction. The key is to spend some time on the front end determining your goals and what to measure that best allows you to see your progress toward them. If you know what you want, it will not take a long time to get going.
Myth Five – KPIs are private
Many people believe that KPIs should be viewed by managers in a closed room. Others believe that sharing information somehow makes them less important. KPIs should be shared widely among your employees. Don’t want to share some of your financial metrics with everyone? Fine, but you should consider sharing as many of them as you can. Metrics related to things like customer service, internal process quality, and employee satisfaction could be posted monthly, along with the goals for each, for all employees to read.
I hope you have a better understanding of KPIs. Are there any other myths I left out? Please let me know in the comments.