Selecting the right Key Performance Indicators (KPIs) is hard!

Peter Drucker is famously attributed for saying “If you can’t measure it, you can’t manage it.”

But are you measuring (and managing) the right things?

industry4o.com5 Biggest Mistakes when it comes to KPIs

𝟏) 𝐌𝐞𝐚𝐬𝐮𝐫𝐢𝐧𝐠 𝐰𝐡𝐚𝐭 𝐢𝐬 𝐞𝐚𝐬𝐲 𝐭𝐨 𝐦𝐞𝐚𝐬𝐮𝐫𝐞  – Often times companies select KPIs based on the available data at their disposal. Too many KPIs (just because you have the data) can easily be a distraction instead of providing focus, especially if the output of what is being measured is not actionable.

𝟐) 𝐌𝐞𝐚𝐬𝐮𝐫𝐢𝐧𝐠 𝐥𝐚𝐠𝐠𝐢𝐧𝐠 𝐢𝐧𝐝𝐢𝐜𝐚𝐭𝐨𝐫𝐬 𝐢𝐧𝐬𝐭𝐞𝐚𝐝 𝐨𝐟 𝐥𝐞𝐚𝐝𝐢𝐧𝐠 𝐢𝐧𝐝𝐢𝐜𝐚𝐭𝐨𝐫𝐬 – A leading indicator looks forward at future outcomes and events (e.g. # of sales calls made, etc. ). A lagging indicator looks back at whether the intended result was achieved (e.g. revenue, profit, etc.). This means leading indicators are often harder to measure and easier to influence, whereas lagging indicators are easier to measure and harder to influence.

𝟑) 𝐍𝐨𝐭 𝐥𝐢𝐧𝐤𝐢𝐧𝐠 𝐊𝐏𝐈𝐬 𝐰𝐢𝐭𝐡 𝐛𝐮𝐬𝐢𝐧𝐞𝐬𝐬 𝐨𝐛𝐣𝐞𝐜𝐭𝐢𝐯𝐞𝐬 𝐚𝐧𝐝 𝐬𝐭𝐫𝐚𝐭𝐞𝐠𝐲 – For KPIs to be effective they need to measure both operational and strategic objectives. Do your KPIs help let you know whether you are on track to meet these objectives or not? If not, they are most likely not useful.

𝟒) 𝐎𝐯𝐞𝐫 𝐢𝐧𝐜𝐞𝐧𝐭𝐢𝐯𝐢𝐳𝐢𝐧𝐠 𝐊𝐏𝐈𝐬 – When KPIs are directly linked to personal incentives, the KPI often becomes the target and primary focus, rather than a useful management tool to help with decision making, allocation of resources, and strategy evaluation. Are your KPIs driving the right behaviors?

𝟓) 𝐍𝐨𝐭 𝐜𝐨𝐧𝐭𝐢𝐧𝐮𝐚𝐥𝐥𝐲 𝐫𝐞-𝐞𝐯𝐚𝐥𝐮𝐚𝐭𝐢𝐧𝐠 𝐊𝐏𝐈 𝐞𝐟𝐟𝐞𝐜𝐭𝐢𝐯𝐞𝐧𝐞𝐬𝐬 – Best-in-class companies continually challenge and question whether the current KPIs are effectively providing value. KPIs should provide easy actionability that allows for course correction towards their respective operational and strategic objectives. But KPIs, and their associated targets (especially when new), may just be an educated guess. Ensure there is a dedicated resource assigned to regularly evaluate KPI effectiveness instead of just managing the KPIs themselves.

Anything you would add to the list?

Thanks Marketoonist for the great graphic!

About the Author :

Jeff Winter

Mr. Jeff Winter
Industry Executive, Manufacturing

Microsoft

Jeff Winter is an Industry 4.0 & Digital Transformation Enthusiast | Business Strategist | Avid Storyteller | Tech Geek | Public Speaker

Jeff Winter is an Industry Executive for Manufacturing with Microsoft where he acts as an industry advisor helping manufacturers across the US digitally transform at scale. With over 15 years of experience working for different industrial automation product and solution providers, Jeff has a unique ability to simplify and communicate complex concepts to a wide range of audiences, educating and inspiring people from the shop floor up to the executive board room.  As part of his experience, Jeff is also very active in the community of Industry 4.0. 

Jeff is a part of the International Board of Directors for MESA (Manufacturing Enterprise Solutions Association), he is in the leadership committee for the Smart Manufacturing & IIoT Division of ISA (International Society of Automation), he is a U.S. registered expert for IEC (International Electrotechnical Commission) as a member of TC 65, and also part of Purdue University’s Smart Manufacturing Advisory Board.

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