The 5 biggest KPI blunders

• Blunder 1: Fixating on revenues
• Blunder 2: Being mesmerized by costs
• Blunder 3: Having too many KPIs
• Blunder 4: An empty KPI shell
• Blunder 5: Setting up KPIs without a feedback loop
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Blunder 1: Fixating on revenues

A well-known paint manufacturer managed purely on the indicators of sales and market share. The remuneration of senior management was linked to these indicators. After a thorough analysis of process indicators, it turned out that the more market share was captured, the higher the loss per liter of paint produced. Management did not want to discuss this information and continued on its chosen path. The consequence? The company found itself in dire straits two years later.

Blunder 2: Being mesmerized by costs

A mental health institution invested a lot of money in a management information system. The first ‘KPI’ to be built and put into use was personnel costs. When the annual accounts were drawn up, there appeared to be a loss of almost five million euros. Cause: too many and too often beds were unoccupied (process-oriented KPI) among others because waiting lists had ‘dried up’ (market-oriented KPI).

Blunder 3: Having too many KPIs

A medium-sized municipality named more than a thousand KPIs. Several dozen for each service, department, and teams. The project was called “PURPOSE”. But with so many KPIs it is very difficult to succeed. Compare it to a soccer team. A good coach is not going to draft eleven players as strikers. Not only is that way too expensive, but the chances of success are extremely low. The less good strikers get in the way of the top scorers. In organizations, you can also lose the overview. The result: an overcrowded dashboard with the desired KPI effect failing to materialize.

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Blunder 4: An empty KPI shell

During our training courses and workshops, this KPI question invariably comes up: ‘what is the biggest disaster that can happen to your company?’ Daan van Beek, lecturer and author of the management “Data Science” book, explains:

“When I gave our Business Intelligence training in Singapore, I asked that question too. It put the participants on the right track at once. One of the participants worked for a company that had ships transporting gas and oil all over the world. His answer caused some hilarity: if one of our ships sinks”.

Blunder 5: Setting up KPIs without a feedback loop

How sad is it when someone does have the right insights, but nevertheless does not decide, or even makes the wrong decisions? A retailer had named exactly the right KPIs and also had corresponding data ready. Every week they were ready on the management dashboard to be seen and used. But the director neglected to discuss the scores with the product managers on a regular basis, especially when the scores were not good. He took immediate action and got rid of exactly the wrong products. The story behind the numbers did not come to life, as feedback from his employees was absent. And we all know: “feedback is the breakfast of champions”.

Some other possible KPI mistakes

1. Increasing production goals without changing the professional organization behind it. If the workplace can’t keep up with the demands placed on them, they’re unlikely to meet their new goals.
2. Only focusing on cash cows; products and services that can be produced quickly and easily. This strategy can block innovation, while your competitors probably won’t be sitting on their laurels. A lack of innovation can hurt your competitive edge.
3. Optimizing input by applying “selection at the gate”. This may make it seem like the processes deliver better output. For example, a university improved its performance by selecting students who excelled in high school. That can cause complacency because the direction neglects professionalizing its internal organization. There’s no incentive to improve or innovate the program.
4. Only focusing on quantitative information can result in a drain of expertise and professionalism. A TV channel that only chases ratings might forego educational content.
5. Working on sub-optimizations, which means the organization as a whole falls behind the competition. An organization might perform well in a chain, but if it’s unwilling to share its competencies with others in the chain, things go wrong.
6. Measuring performance can lead to greater transparency. The organization also becomes more vulnerable to cost-cutting or interventions from outside or above. This can also work to the organization’s advantage: if the organization performs well it can serve as an example to others.
7. Working with false KPIs can lead to a kind of bureaucracy where the organization knows anything and everything that can be measured, from the most useful to completely useless information. Registering data should be a means to an end, not an end unto itself!

An intelligent organization carefully balances short and long-term thinking. They focus their measurements on the things that matter most to them (KPIs and the most valuable insights).

Prevention is better than a cure

Order now the SMART KPI Toolkit: The guide to performance management