Painting by Numbers with KPIs

Interested in Becoming a Member?

An SIM Membership like no other, provides you with an abundance of tools, resources and opportunities to help you achieve your professional and personal success at every step of the way! Be part of our learning community of more than 34,000 corporate and individual members.


For more information about membership, please click here »

Member Login

If u are a subscriber, please use ur subscriber login.
If you are a SIM Member, please use your SIM Membership login.



Forgot your password?

Member Login



Forgot your password?
login  Cancel

Sign Up

If you wish to sign up for a SIM Membership, please click here

Subscribe

If you wish to subscribe to Today's Manager, please click here

If you wish to subscribe to Singapore Management Review, please click here

Website maintenance notice: Website will not be accessible from 27 June (11 pm) to 28 June (9 am) due to scheduled maintenance. We apologise for any inconvenience caused.

Home > Articles > Painting by Numbers with KPIs

 Painting by Numbers with KPIs

Steven Bleistein | Today's Manager
March 1, 2019
We use key performance indicators (KPIs) to incentivise desired behaviours and results. Yet, every KPI spawns an equal and spurious reaction that produces unintended results. No KPI can replace good judgement and common sense.

The KPIs that matter the most are the ones that help you make strategic decisions for your business based on the business outcomes you want to achieve. Yet I find that KPIs used often displace the business outcomes and become the desired results per se at the expense of the business.

We use KPIs to incentivise desired behaviours and results. Yet Steve’s first law of motivation (yes, my law), states that every KPI intended to motivate a desired action spawns an equal and spurious reaction that produces unintended results.

A vice-president (VP) of sales of consumer goods at the Japan subsidiary of a major international brand company had her staff turn down a customer request to order additional stock of a product, even though the company had inventory available. The head office had mandated a KPI that tracks forecast accuracy. Had she allowed staff to accept the order, it would have worsened that KPI because the customer would have ordered more than had been forecast.

When the chief executive officer (CEO) of the subsidiary, her boss, found out about the rejected order, he hit the roof, not just because of the lost order, but also for the unsold inventory that would likely end up as scrap. The intent of the KPI had been to incentivise reduced scrap!​

Running a business requires more than painting by numbers, even though KPIs are often treated that way. A recently-hired VP in charge of claims at the Japan office of a major international consumer insurance company complained to me about 40-odd KPIs he had to track as mandated by the head office, not one of them useful in running his business. Nonetheless, he worked tirelessly at making his numbers. The strategic objective of his division was to increase loyalty among clients who had experienced submitting a claim. Tracking policy renewal rates of such clients would seem to be a reasonable way to gauge that satisfaction and loyalty. Yet when I asked about this, the VP told me the company does not track such data, so neither does he. Perhaps the company has no such KPI, but what was stopping him?

Executives in the head office of a European snack food company required the CEO of each subsidiary operation around the world to submit a list of important KPIs to be included in a harmonised reporting template for every operation. The standard report format was to be compiled from the lot of KPI submissions. The Japan subsidiary CEO was troubled by such a specious request, and rightly so. The importance of any KPI is always contingent upon desired business outcomes. A better approach would have been for the executives in the head office to begin a discussion about the strategic objectives most important to them, and the kind of data that would help them make better and quicker decisions in achieving those objectives. Can you imagine the deluge of KPIs that were returned to the head office and trying to sort through them to determine which might even matter without such a discussion? No KPI is a heuristic for the business on its own.

In the military, there is a saying: “When the map and the terrain don’t agree, believe the terrain.” KPIs may serve as your map, but your business is the terrain. No KPI can replace good judgement and common sense. Now if only there were KPIs for those.

IMAGE: 123RF


Mr Steven Bleistein is CEO of Tokyo-based consulting firm Relansa, Inc, and the sought-after expert on rapid business growth and change. He is the author of Rapid Organizational Change (Wiley 2017), and writes for The Straits Times.


Copyright © 2019 Singapore Institute of Management

Article Found In

Today's Manager Issue 1, 2019

View Issue
 

Browse Articles

By Topic
By Industry
By Geography