Which KPIs should a business track, and which ones backfire?

A business should track a few measures tied to a few objectives, each with one owner and a leading measure beside each result. The KPIs that backfire reward something the business does not want, such as sales at any price. No universal list exists, because the right measures follow from what the business is trying to change.

What belongs on the list?

The list starts from the objectives. The practice a business can aim for is three to five written objectives, each with a measure of success and a named owner. The list of measures the top team runs on stays short. The check's sentence for that practice reads: "About a dozen measures for the business, and a handful per unit, sit in one place with a one-line definition and a source for each."

• Defined once. Each measure has a one-line definition and one source, so two reports never disagree on last month.
• One owner who can move it. The owner presents the number in the monthly review and answers for it.
• Leading as well as lagging. Each objective has a measure that moves before the result, such as pipeline, orders, lead times or complaints.
• More than the money. Customers, people and operations are measured as well as sales and profit.

Which KPIs backfire?

A measure backfires when it rewards one thing and the business wants another. The lowest sentence on this practice reads: "A measure is adopted because it is easy to count, and the first anyone hears of the behaviour it causes is a complaint from a customer or another team."

• Revenue on its own. It pays for sales at any price.
• Handling time on its own. Calls are cut short to hit it.
• A bonus that is all or nothing on the budget. The budget gets negotiated down. Anyone behind gives up by the third quarter, and anyone ahead slows down.
• Last year plus a percentage. The same rise for every unit ignores where each one starts.
• A number the owner cannot move. A unit head answers for a group cost, and the bad number is explained instead of fixed.
• A hard line at period end. Sales are pulled forward and costs pushed into next month.

How does a business stop a measure backfiring?

It pairs each measure that carries a target or pay with one that catches its side effect. Revenue goes with margin. Speed goes with rework. Volume goes with returns. The pairs are reviewed together.

Before a measure goes on the scorecard, someone writes down what it could make people do. Once a year, any measure that no longer changes a decision comes off the list.

The next step

The KPIs and incentives check takes about ten minutes. It shows whether your objectives, measures, targets, reviews and bonus add up to one system, and which practice to fix first.

No email before your result. No sales call after it. No list. Delete on request.

Related questions

• What are the stages of excellence in KPIs and incentives?
• Should sales commission be paid on margin or revenue?
• What is a Stages of Excellence assessment?

This page is drawn from the KPIs and incentives check's grid and its recommendations on onestepright.