Businesses that start implementing KPIs at a departmental level, without an enterprise wide effort to define a balanced set of key performance indicators, can unwittingly push their businesses into a no-win situation, as in these real-world scenarios:
- Customer Call Centers (often ahead of the curve as far as setting metrics) are tracking and incentivizing their call center agents to keep their call times short. Call center agents, in an effort to shave seconds off of each call, omit the crucial step of searching for a customer before entering a new one while logging interactions. Result: Duplicate customer records, which may even be pushed to other systems, creating pain throughout multiple departments.
- In the push to meet monthly sales quotas, hyper-discounting behavior becomes the norm among the sales team. If the pricebook is complex and no one can get a true read on profitability, inappropriate discounting may be approved when management doesn’t have access to the right information to make an informed approval decision.
- Some businesses steer only by financial performance measures, but these are lagging indicators, and can seldom, in and of themselves, provide the required agility to succeed in rapidly changing situations.
The key, of course, is to strive for balance when implementing KPIs:
- Balance between leading (forward-looking) and lagging (backward-looking) indicators.
- Balance across stakeholder perspectives. The Balanced Scorecard as a starting point works well to achieve balance across core stakeholder viewpoints of financial, customer, process, and learning/growth.
- Balance across levels in your business hierarchy. Kaplan and Norton expanded on the balanced scorecard approach to help businesses drive metrics down through their organizations via strategy maps.
- Balancing speed metrics with quality metrics
The alternative to a balanced approach at the outset is usually a technology desparation move, such as manually cobbling together some key reports, manually trying to scrub out duplicate data, implementing undesirable or even temporary customizations to packaged programs. There’s usually at least one person in the IT department who’s enough of a Star Trek fan to want to reprogram that no-win scenario, just like the young James Kirk did with the Kobayashi Maru.