“Tracking the shiny is easy compared to digging for gold” – Laura Miller

Key performance indicators (“KPIs”) describe a suite of quantifiable measurements that are used to monitor a company’s performance. KPIs assist in narrating a company’s sales, people, customer and operational achievements (or issues) as well as providing a comparator against other similar businesses. They are vital for investors, providing reporting transparency and holding management accountable. Choosing which measures to report is extremely important in delivering real understanding of corporate performance to shareholders and interested parties.

Choosing the right KPIs may be complex, and selection is unique to the sector in which the business operates. A great starting point is looking for measures that align with the strategic plan, assist in assessing progress, and which are relevant to the particular articles and memorandum of association of the company. There is no right or wrong answer as to how many there should be, although “less is more” is most likely to apply in this case. KPIs should also remain fluid, and it is normal for them to change or evolve over time, as a business changes direction or switches emphasis.

The use of KPIs is rightly open to criticism; sometimes used as a stick to beat an employee with during a performance review, they can be manipulated to hit the number (maybe at the expense of customer service) or could be described as “looking backwards”. A final result over a period of time cannot be changed, so is there much value in spending too much time deconstructing what went right (or wrong) in the past? This often leads to little more than increasing or reducing the target. The concept of Business Growth Indicators is gathering momentum, where the unmovable company goal is set, and then the focus is on adapting the mechanics and strategies from a “forward facing” perspective. It’s a subtle difference, yet can encourage accelerated growth, colleague collaboration on a common goal focused on the “how”, reduced employee stress and fewer negative connotations and consequences attached to missed targets. The spirit of the strategy is to “change the plan, not the measure”.

Assuming the executive team have designed appropriate KPIs for a business, communicating to employees how the measures link to the overall strategy is a crucial part of the process. This should be supported with a KPI action plan with clear descriptions of the levers and techniques available that will assist in delivering the target. Management accountability for specific measures may also be useful to embed the culture. Linking KPIs to incentives or bonuses should be approached with caution, as this may inadvertently encourage bad behaviour’s, practices or customer service.

Regular and thorough one-to-ones or performance reviews are crucial for the development of an employee, yet a manager using KPI results as the single measure of performance is running the risk of disengaging the colleague under review. Reliance on capability and performance management processes may also increase sickness and absence through stress; a manager may get a spike in results through fear, but this is rarely a sustainable long-term strategy for success. In fact, “managing by numbers” is probably more a reflection on the limited capability of the manager to lead, coach and train their employees effectively over an extended period of time.

Every business should have goals and targets; but are you using them to motivate and inspire your teams to success, or are they creating employment issues for your business? Chadwick Lawrence are here to help, so please call 01924 379 078 to discuss any points raised, or general support for your HR team.