Are KPIs a Formula for Failure?

An over-emphasis on Key Performance Indicators may impair performance rather than boost it. So how can organisations set effective KPIs to get the best out of their employees?

Are KPIs a Formula for Failure?

24 Jun 2016 by  Prawee Nonthapun

Most companies striving to build high performance culture use Key Performance Indicators, or KPIs, to track performance. According to the Aon Best Employers – Thailand 2016 study, companies with high performance culture achieve 25% stronger growth, 58% higher profit, and 17% lower employee turnover—and clear KPIs are likely to have played a part in creating a result-driven environment. On the other hand, an over-emphasis on KPIs can be damaging to employees, and ultimately, the organisation.

So, how can organisations bring the best out of their KPIs instead of letting KPIs bring the worst out of them?

Focus on quality over quantity

Set KPIs at a reasonable weightage of no less than 10% each. This gives employees clear direction and enables them to channel their effort and focus on what truly matters to business—and even perform beyond expectation.

KPIs formula for failure

Connect individual contributions to business outcome

At the heart of a good KPI is a clear link to show how individual contributions lead to organisational success. Design KPIs towards tangible outcomes; not just in relation to day-to-day tasks, but to the direction the organisation is going.

Compensate high performance

If performance goes unrewarded, employees start to feel discouraged from going the extra mile—or even performing at all. More than just rewarding employees at the end-of-year performance appraisal period, targeted achievements must be rewarded throughout the year to sustain motivation and productivity.

Collaborate, not compete

Some organisations manage KPIs specifically to narrow balance sheets and goals. As a result, accountability becomes siloed. For instance, two teams may have sales goals for the same target group, but instead of combining their efforts to achieve shared KPIs, each team tries to one-up the other; creating competition rather than collaboration.

Setting shared KPIs will encourage employees to focus on business goals, and channel their efforts towards going up against the real competition outside your organisation.

Balance input and output

There are two types of KPIs—lag and lead—and achieving high performance from your employees requires a balance of both. Lag KPIs, such as customer satisfaction, are business-centric and input-driven; whereas lead KPIs, such as implementation of cost-saving measures, are individual-centric and output-driven. With the right balance, employees will be able to understand how their individual contribution benefits the organisation as a whole—driving them to put in the extra effort to perform beyond expectation.

Track, measure, and manage performance

Once-a-year reviews aren’t good enough to successfully and fairly measure progress towards KPIs. Instead, conduct regular check-ins to support employees in their day-to-day tasks as well as their contribution to organisational goals. These regular check-ins can also be used to mitigate troubled tasks and fix problems before it’s too late.

KPIs are designed to make employees aware of their goals and how they contribute to the overall performance of the organisation. At the same time, KPIs also provide excellent career development and learning opportunities for employees and offer organisations a means of identifying their high potentials and high performers. All they need to do is set the right KPIs in the right ways.

Start a conversation with us

If you need help with making the best of KPIs for your employees and your organisation, get in touch with us today.

Prawee Nonthapun

Prawee Nonthapun is Consultant for Aon Hewitt Thailand. Prawee guides firms in the design and development of strategies to improve performance management and employee engagement. She works closely with clients in State Enterprises, Real Estate, and Medical Services. She is passionate about subjects such as digital economy, talent management in start-ups, and gamification at work.

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