The problem with KPI’s

Towards the end of his tenure as co-CEO at SAP, Jim Hagemann Snabe discovered that the organization had more than 50,000 key performance indicators (KPIs). Snabe reflected, “We were trying to run the company by remote control. We had all this amazing talent but had asked them to put their brains on ice.”

As organizations struggle to find efficiencies, the overindulgence in KPIs is getting a bit out of hand. It is not uncommon for any team or group to track measures that indicate success, justify headcount, and prove their organizational value. But is this the best way to do the right work to move your company forward when the demands on the company are constantly evolving?

As the need to measure increases, there are two main areas where KPIs can create unhealthy dynamics and behaviors.

1. As your organization grows – the amount of KPI conflicts increase
2. KPIs are guidelines, NOT rules

KPI Conflict

As organizations grow, like SAP, the control over KPIs becomes limited. Is there someone reviewing KPIs holistically in your organization? Since the answer is likely no, it’s easy to assume that each KPI may seem reasonable and rational to each group. Still, it becomes abundantly clear how incredibly siloed an organization you have when put together.

A single KPI is not necessarily the problem – but the sheer amount of KPIs will lead to conflicting KPIs. And when KPIs are the primary measure of success, it’s easy to see how you could have multiple groups or teams within your organization that are in conflict with each other.

This situation is not all that uncommon. For example, if an Organization has multiple Services delivery channels, one service team may be primarily tasked with meeting its revenue targets with internal resources. While at the same time, another team may be charged with farming out work to partner Organizations outside of the company. These two groups will have wildly different KPIs to support their goals. The issue grows when both rely on the same revenue stream, resulting in internal conflicts. Without oversight, the Partner Organization can easily ignore the Company revenue targets and overzealously push work to meet their KPIs. Or vice versa. The situation becomes increasingly worse when Organizations decide to tie bonuses to KPIs.

KPIs are Guidelines

KPIs are Guidelines – they are not rules. The main problem with KPIs is that they encourage rule-following over common-sense thinking.

In 2017, United Airlines had a policy that led to an absolute PR disaster when they forcibly removed 69-year-old physician David Dao because they had oversold the flight. They did have an approach for randomly selecting passengers, but the policy did not cover common sense thinking when the passenger did not agree to the terms. Note: You can search youtube for this video – but it’s horrific.

In contrast, Southwest Airlines empowers its people not to abide by KPIs and policies but to use them as guidelines. Southwest did not focus on measures and procedures for every possible situation that may occur. But instead, they focused on common sense training and encouraged their staff to remain customer-focused. This has led to a fantastic assortment of memorable customer experience stories. Here’s some more detail about those experiences from Shep Hyken.

A Leading Guideline for KPIs

KPIs are essential when everyone is laser-focused on shared goals. KPIs aren’t inherently wrong. It is critical to have targets and to measure progress toward those targets. Where KPIs often fail is when there are too many of them that go unchecked.

To assist with putting KPIs in their place, a mantra should sit on top of the KPIs, giving teams and employees the flexibility to use common sense. At Workfront, we use a Commander’s intent. The Commander’s Intent gives the overarching goals and objectives that everyone in the organization knows – by heart. You can bend or break a KPI, but only if it aligns with the Commander’s Intent.

For more on the Commander’s Intent – pick up the book “Done Right” by Alex Shootman.

References and Resources

Humanocracy by Gary Hamel and Michele Zanini; Type: Book

Done Right by Alex Shootman; Type: Book

How to Set & Measure KPIs by Hypercontext; Type: Article

Executive Summary

• Key Performance Indicators (KPIs) are a good idea until they get out of control.
• Excessive use of KPIs in organizations can have negative consequences by adding confusion and internal conflict.
• Conflicts arise when different teams or departments within an organization have aspirational yet conflicting KPIs, leading to a lack of alignment and potentially detrimental outcomes.
• KPIs should be used as guidelines rather than rigid rules, as excessive focus on KPIs may discourage critical thinking and common sense.
• Having a clear overarching goal, known as the Commander’s Intent, can help teams prioritize and align their actions while allowing flexibility.