As business leaders, we naturally expect that the KPIs we set affect behaviours across the entire organisation.
Why?
Because when employees are performance managed against KPIs, they naturally adjust their efforts, behaviours and focus to meet those KPIs. Especially when performance links to bonuses!
But it’s often surprisingly hard to get right.
The risks of unintended consequences
When we talk about wanting KPIs to inform behaviours, we want those KPIs to guide behaviours that holistically drive the organisation’s overall performance. We don’t want the individual or team-based pursuit of one KPI to damage the outputs of another KPI – although this can all too easily happen.
For example, if we create a sales KPI, our salespeople will be driven to hit their sales to get a bonus. Or perhaps we set a completion time KPI for a manufacturing line. Focusing on hitting output or sales targets, some employees may be tempted to cut corners and ignore quality or safety measures. As a result, we may increase our production output or sales in the short term – but we will also risk a rise in customer complaints, switches to competitors, errors, or more serious outcomes.
The risks of KPI ‘gaming’
In business, when we talk about KPI gaming, we talk about behaviours that we don’t want to occur from KPI setting. Gaming is, in this instance, a form of cheating, where a KPIs data or calculation is adjusted to suggest a positive outcome or when the business performs a specific element of the deliverable to ‘hit’ the KPI.
But it’s important to know that even positive; genuine KPIs can become subject to gaming – not just low-level operational measures with tough targets and excessive quotas that risk the wrong behaviours.
For example, we might have a measure related to injury incidences at work. This would be a good way of assessing how well the business’s safety culture and processes are being followed. But it can be gamed if managers encourage injured employees to remain at work. Well-being and safety drop, and the business risk rises. The measure might have been well-intended, but the wrong behaviours result.
How measurement drives employee behaviour
KPIs themselves tend not to drive behaviour – even if they are ‘good or bad’ KPIs. It’s the management process of these KPIs that affects the underlying behaviours. Even if your KPIs are superb, they won’t automatically improve behaviours across your business. The tools for guiding behaviours lie in your performance measurement and overall culture.
When we use a scorecard method such as the Balanced Scorecard, combined with clear ownership and accountability, we reduce the risk of
– Setting unrealistic targets, which take safety, well-being, human error, customer satisfaction etc out of the equation (e.g. sales at all costs.)
– Making targets an expectation of performance attainment – with a high degree of stress and pressure – rather than building an intention to perform with a healthy culture of positive, supportive performance
– Making accountability a function of targets, with a blame culture that judges people if they don’t reach targets (especially targets that they don’t have the ability, resources or scope to reach.)
In these instances, the organisation will do whatever it can to ‘hit targets’ – whatever the safety, reputation, well-being or cultural outcomes.
How to fix the problem – 5 key things to ensure the right behaviour
To drive the correct behaviours, we need to put the correct measurement process in place:
- Think about accountability
Rather than creating KPIs that focus on hitting targets, create a culture of ownership and accountability that focuses on monitoring progress, interpreting the KPI correctly and responding to it in a positive, responsible way that ensures that employees and the business are safeguarded, supported, and kept free from reputational risk. Yes, positive challenge and ‘stretch’ is essential to create a high-performing culture, but this culture of performance must be managed in the right way.
- Create KPIs in the right way
Make sure your KPIs are being developed by the very managers and leaders who will use them as a tool to drive performance improvement. As part of this, consider the consequences – particularly unintended consequences – of selecting a KPI. Will a KPI potentially have a negative effect on another vital aspect of your business? Could it drive-down standards elsewhere? Similarly, every KIP must be linked in some way to a family of related KPIs so that a true and holistic view and understanding of the business’s performance can be built over time.
- Lies, damn lies, and statistics: get your measurement right
KPI measurement should encourage learning and improvement. It should not be chosen to judge, compare or criticise. Traditional performance measurement practices tended to blame, judge and punish people who were seen not performing – even for elements beyond their control. Modern frameworks such as the Balanced Scorecard help organisations avoid this and correct fair, accurate, and current measurement processes that guide the right behaviours and outcomes.
4 Look at your culture
Look to embed the right KPIs management techniques to build a positive and healthy performance culture. A genuinely high-performance culture will have buy-in, excellent two-way communication, consistent management, regular celebration of success, support, training and mentoring and so forth.
- Look at your system
We still need good KPIs to focus on results and improvement. And we need a good measurement process to create quality KPIs. The best way to achieve this for many organisations is by using a strategy management framework such as the Balanced Scorecard or another tried and tested methodology. This helps to provide the overall framework, tools, guidance and experience needed for organisations of all sizes and types to enjoy better strategic success.
