How To Avoid The KPI Trap
Key Performance Indicators (KPIs) are useful tools to monitor progress and assess the state of the business at a specific point in time. Executives and market analysts rely on them to shape their understanding of the health of the business and its ability to meet projections.
Yet, KPIs are not strategy.
Relying exclusively on KPIs to assess progress toward objectives can be a trap.
Making your strategy work requires actively aligning strategy and operations. (This is also the heart of my book, Charting the Course, available on Amazon.) Executives who successfully achieve their objectives have found the right balance between strategy and operations. They’ve learned how to shift the balance – and their focus – as needed to adapt to changing conditions along their strategy journeys.
KPIs are operating metrics intended to monitor progress toward near-term objectives. Skilled executives include both leading and lagging indicators of progress in their operating scorecards. This helps their teams to anticipate emerging challenges and opportunities even as they assess progress toward objectives.
Therein lies the trap. When you align strategy with KPIs, the focus shifts entirely to near-term activities and results. You risk creating myopia, particularly if KPIs are the sole (or paramount) metrics used to measure progress.
Instead, align KPIs with strategy.
Start with the destination (your vision and longer-term aspiration) and identify the most relevant strategic indicators. These form your Strategic Dashboard© - the foundation and context for taking strategic decisions about operations and people. Unlike KPIs or other scorecards, a strategic dashboard promotes a forward-looking perspective that goes beyond the activities required to manage day-to-day realities. Many strategic dashboards also include qualitative metrics to assess behaviors, perceptions, and other indicators of change.
KPIs - the few most critical operating metrics - become warning or status lights directing you to check the alignment between strategy and operations. Designed well, KPIs complement the dashboard, guiding everyone – including the board – to focus attention on the things with the greatest potential for strategic impact.
For example, a conservation organization I advised aimed to inspire and instigate new behaviors, attitudes, and actions to create more sustainable marine environments. They tracked typical event and attraction data to assess business realities – like gate revenue, cash flow, and margins. With my guidance, the Executive Team brought the strategy to life by connecting high-level strategic priorities to measurable indicators of progress, tracked over time. The Strategic Dashboard© they created also built strategic agility and capability among their board and staff. In this way, both board and staff had appropriate tools to keep their eye on both strategic progress and organizational health.
Achieving your destination requires an ongoing balance between strategy and operations. Effective leaders routinely start with the bigger picture (vision and strategy). Then, they highlight the critical operating results needed to pursue the strategic priorities. In this way, they guide their entire teams to link their specific work and roles to strategy.
Execute your strategy more effectively using a Strategic Dashboard© - and avoid the KPI trap.
Find both Strategic Dashboard© and Operating Scorecard tools in my book: Charting the Course: CEO Tools to Align Strategy and Operations.