Reading the tea leaves is what most organisations are doing if they don’t do Key Performance Indicators (KPIs) well. They are trying to understand the past (lag KPIs) and predict the future (lead KPIs) with nefarious measures. Measures that are either:
1. Convenient – Typically plucked from a list of KPIs that seem to be appropriate and subsequently deemed unimportant and are barely considered in decision making.
2. Biased – Creating an over emphasis, typically on profit in the private sector, even for organisations running a “balanced” scorecard. The result is poor decision making.
For an example of the effect of biased KPIs, look no further than the 2018-2019 Royal Commission into the Australian finance sector. The bias was towards profit and against customers, especially the least aware and the most vulnerable. In fact, we were provided with a smorgasbord of examples. There could have been no better example than that of the tellers at CBA putting a little of their own money into kids’ bank accounts to meet targets set for new kids’ bank accounts, thus earning themselves bonuses!
In 1956 V.F. Ridgway published a journal article titled “Dysfunctional Consequences of Performance Measurements” and commented, ‘What gets measured gets managed — even when it’s pointless to measure and manage it, and even if it harms the purpose of the organisation to do so.’ Which means, the points I am making are not new, not by a long shot.
Why is this so? Because like so many things, when it comes to measurement, you have to pay attention to some of the science to get it right. You must understand what measures matter and then measure them correctly to avoid misleading statistics.
While I frequently help organisations improve their KPIs alongside my stats guru colleague Dr Andrew Pratley, I point others (who prefer a DIY approach) to my colleague Stacey Barr’s PuMP training program.
Next week I will jump from KPIs to KRIs, Key Risk Indicators. If you can’t wait until then, you can download Chapter 9; Reading the Signals from my book Risky Business: How Successful Organisations Embrace Uncertainty. Better still, buy my book and gain access to free resources that are there to help organisations perform better, faster!