Why KPIs are Killing your Business

The dominant paradigm - or thoroughly assimilated worldview - of senior managers is that business is best driven and measured by key performance indicators. ‘Fine-tuning’ KPIs - like pistons in an engine - can ramp up growth, streamline costs, improve customer satisfaction or help turn the organisation into an employer of choice. One need only sufficiently reward (or punish) people for hitting their KPI ‘targets’ (or not) to make it happen. Yet treating the organisation as a dumb machine - and its people like children with gold stars for good performance - undermines effectiveness and is killing business today.

The over-reliance on quantitative methods in modern management - calls made per hour, minutes per customer interaction, customer satisfaction scores etc. - ignores the complex nature of the wider world the firm operates in and the real (qualitative) nature of its challenges. The following is a real example from a large retail bank:

A woman, pushing a baby in a pram, was about to leave the bank after completing her transaction when a customer service rep approached her. He politely asked (he was well-trained) whether she could spare a few minutes to answer some questions about her banking experience today. Like most people do when asked nicely the woman agreed. She answered the questions on his list and he ticked off all the boxes. When they had finished he asked her if she had any questions for him - she said no, so he thanked her and walked off. The woman called him back and asked, amazed, why he hadn’t opened the door for her, especially as she had just helped him with his customer feedback questions. “Let’s fill that questionnaire in again” she demanded.

The rep failed to do what would have come naturally to him had he not been at work - opening the door to let a mother with a pram out. Instead, he acted according to how his KPI dictated - being an efficient (polite) cog in the machine. As his humanity is not rewarded he learns to leave it at the door when he comes to work. Multiply this interaction by the millions your staff have with customers (and each other) every day and you get some sense of the limitations of running your business by KPIs alone.

By taking an exclusively internal view KPIs become poor drivers of effectiveness. They cut the business off from wider economic realities, ignore the changing nature of customers needs and rely on unscientific ideas as to what really motivates staff. At best they help senior management map out possible budget scenarios (‘if everyone does x then the result will be z’), but at worst they become explicit targets (ceasing to be measures of performance) that reward those adept at winning competitions, often at the expense of the collaboration, creativity, responsiveness and adaptability staff need to meet emerging business challenges.

Senior managers must be careful not to take the variability (and resilience) out of their business by uniform KPIs. Managing by rigid processes and conformance rewards merely turns resourceful humans into human resources. This adds direct costs to the business in management control, re-hiring and re-training (as staff leave) and represents a MASSIVE opportunity cost as recently outlined by Gallup, who suggested that most companies are maximising only 5% of their workforce.

Only when businesses start building operations around the way people really are, rather than the way they want them to be, can they exploit the real opportunities and resist the clear threats in today’s economies. The key take away is that human behaviour can’t be modelled mathematically, so quantitive approaches like KPIs ALWAYS blow up spectacularly, eventually. Recognising this represents a HUGE competitive opportunity for the organisations that adapt first.


Contact www.narrativeinsights.com today if you’d like a free presentation on how to organise your business for success in a more challenging world.