By Neal Glatt

KPIs, or Key Performance Indicators, are used by nearly every business when they’re trying to get to the next level of performance.  But more often than not, they do more harm than good.  That’s because the KPIs most systems provide as standard don’t actually provide an actionable insight to help the business improve.  Here’s the three reasons your Key Performance Indicator may be Dead On Arrival….

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KPIs often fail to move the needle because they’re lagging indicators.  That means that what is being reported is based on something that already occurred and can’t possibly improve outcomes in an actionable way.  Great performance is the result of future planning, not past reviewing.

Think about looking at a bank statement and seeing all the deposits and withdrawals made last month.  You may find some interesting insights into how money was being spent, but nothing inherently changes by knowing that information.  Better financial habits will be the result of a budget for the future, not a statement of what already occurred.

For sales teams, simply reporting last month’s number of quotes, meetings, or sales doesn’t help, but a sales plan for the next month showing behavior would improve outcomes.  Operations teams reviewing efficiency, windshield time, or overtime hours for last week can’t do anything about it, but a better staffing plan and job routing can improve results.  Moving from lagging KPIs to leading indicators of success changes the game and puts us back in control..

KPIs also fail when the number being reported isn’t relevant to the goals.  That is, just because something can be computed as a number doesn’t mean it should be.  For instance, many sales teams like to report the number of the open quotes to show the number of proposals that have been delivered to clients but not yet won or lost.  What can be learned from this KPI?  For most teams, almost nothing because they don’t have consistent close rates, reliable pipelines, or consistent opportunities.  

What are far more insightful KPIs in this situation?  Average number of days quotes remain open would reveal the closing skill of a sales team.  Average opportunity size of existing proposals can help predict behavior needed to reach goals.  Number of outbound calls can forecast the size of future pipeline opportunities.

KPIs will always be useless when they’re not understood.  The biggest culprit of bad KPIs is the phenomenon of mutual mystification where an entire organization tracks and reports numbers that nobody understands.  Perhaps there is no more prevalent example in our industry than revenue per man-hour.

What does it mean when a company reports $78/man-hour revenue?  Is it good or bad?  Is it profitable or not?  Did the company actually make money in this instance?  Nobody really knows because there is no context for the overhead, materials, drive time, and pay rate of the employee.  Even when those items are backed out in an effort to get to profit per man-hour questions remain unanswered.
It is reminiscent of the fictional rock band Spinal Tap who claim they have special amps where the dials go up to 11.  They proudly claim that all other bands have equipment which caps out at 10, meaning that “if we need that extra push over the cliff…we put it up to 11 and it’s one louder than 10”!  Unfortunately for most businesses, the irony is lost when it comes to KPIs.

Data-driven insights are only as strong as the data they rely on.  Perhaps it’s time to reevaluate the KPIs used for the decision-making process.