How to get the most from KPIs
KPIs – key performance indicators: a waste of valuable time and resources and the bane of employees’ and managers lives, or an essential tool in driving growth, innovation and competitiveness, particularly for IT organisations that face significant pressure to move to a rapidly evolving digital landscape?
“Potentially both,” says Lauren Clark, Mint Group’s Head of People, who acknowledges that KPIs are administratively demanding and time intensive to develop and implement effectively.
However, when done well and aligned with the company’s overall strategy, the quantifiable metrics and data-driven insights provided can be powerful drivers for developing employees and, ultimately, ensuring the organisation’s sustainability and profitability.
Seldom, if ever, a once-off process, KPI development can take months and require constant refinement to take account of changing business and economic conditions. However, effective KPI management will provide valuable data for informed decision-making by offering insight into trends, patterns and performance gaps; help to identify strengths and weaknesses; and enable organisations to capitalise on opportunities and address challenges.
“KPIs help to reinforce good, strong performance and to enable course correction when performance is not meeting expectations. It should not be used as a ‘carrot and stick’ exercise – designed only to reward those employees who score well, and penalise those who don’t,” Clark says.
“With the employee’s remuneration and career path potentially at stake, KPIs can’t be implemented overnight using an off-the-shelf software solution. Even the best solution, of which there are many, needs to be carefully selected to ensure it can be tailored to the needs of each organisation in a way that is transparent, specific and fair.”
According to Clark, it’s important that companies adopt the most appropriate KPI support model for measuring employee behaviour and performance. This could range from a tick-box exercise that checks that the employee fulfilled their designated tasks in terms of their job description (which she doesn’t recommend) to a more complex balanced scorecard.
A balanced scorecard usually involves measuring the employee’s contribution to and impact on different aspects of the business, such as business processes, customers, finance and learning and growth, rather than focusing simply on how well the employee performs their daily tasks.
“In an IT organisation, for example, the balanced scorecard could take account of issues such as delivering system uptime, response time, customer satisfaction, project delivery timelines and cost management. But there may be other considerations that could also be important, such as maintaining certification and constant upskilling through the completion of courses that might be essential to maintain competitiveness and drive innovation,” she explains.
“The important thing is that KPIs need to be both specific to each employee yet also standardised in terms of performance assessment. And that requires managers to understand how assessments and ratings work so they can rate the employee fairly and consistently.”
Employee buy-in to the complete process is essential. The best way to obtain this, Clark maintains, is to ensure employees feel they are part of the whole KPI process – that KPIs are not something that happens to them, but with them.
She offers the following tips for ensuring employee – and management – buy-in to the KPI process, and to its success:
- Clarity and understanding: Employees appreciate well-defined and clearly communicated KPIs that align with their roles and responsibilities. When they understand how their performance is being measured and what is expected of them, it will enhance their focus and motivation.
- Relevance and alignment: Employees are more likely to value KPIs that are directly linked to organisational goals and objectives and align with their own job responsibilities. If they can see the connection between their individual KPIs and the broader purpose of the company, they are more likely to find them meaningful and be motivated to achieve them.
- Fairness and objectivity: Concerns about the fairness of objectivity of KPIs is natural and understandable. If KPIs are perceived as arbitrary, biased or favouring certain individuals or teams, it could lead to frustration and demotivation. Employees value a fair and transparent KPI evaluation process that identifies and rewards good performance accurately.
- Realistic targets: If KPIs are set at unattainable or unrealistic levels, out of touch with the actual work demands and constraints, it can create stress and anxiety. Excessive focus on KPIs without considering other important aspects of the job can lead to burnout, resentment and decreased job satisfaction.
- Impact on work environment: In some instances, the implementation of KPIs may create an unnecessarily competitive or stressful work environment. It’s essential that the focus on KPIs does not lead to excessive pressure, fear of negative consequences or undermine teamwork and collaboration.
- Administrative burden: The burden of tracking and reporting KPIs should be ameliorated as far as possible by simplifying the whole process. If the process for collecting data or documenting progress is cumbersome and time-consuming – Clark suggests no more than two hours twice a year – the legitimacy of the process may be undermined.
- Continuous improvement and feedback: Employees appreciate regular feedback and opportunities for improvement. KPIs can be valuable tools for facilitating constructive feedback discussions and identifying areas for growth and professional development.