They usually stand for Key Performance Indicators but I have seen enough damaging KPIs to warrant the other acronym.
What are they good for?
KPIs are one tool in the arsenal of management consultants. They are used to help assess employee performance against measurable outcomes (e.g., financial or sales targets, process documentation etc).
A sophisticated KPI system tries to align the employee KPIs with those of the company and its vision & mission. This is backed by continuous feedback and support for each business division and each employee, to help reach their targets.
Where it all goes wrong
Die by your KPIs
Always ensure that KPIs do not become the purpose instead of the mean. They should only be stepping stones towards the higher purpose as expressed in the vision & mission of your business.
Most importantly, remember that KPIs are not rules. There is a great deal that goes on in a good business model that cannot be measured by a KPI. For instance, how do you reliably measure or promote openness and trust amongst employees?
Vision one way and action the other
The vision and mission of many businesses include words such as open culture and trust, stimulating environment etc. At the same time, however, meeting the KPIs becomes the goal of each business divisions which itself can lead to conflicts
One-dimensional focus
Success with a KPI focused on financial targets may overlook the way that has been achieved by enforced payments and lower customer satisfaction.
Example
In simple terms, when I help my clients with their KPIs, we usually start by writing the key business performance indicators on a white board. These cover all aspects of their business. To help them focus I usually categorise each indicator under one of these 4xP’s:
1. Profits (financials)
2. People (clients, employees, colleagues, community etc)
3. Products (or services)
4. Process (Risk management)
Then we openly discuss with all the business units what each division need to do to take us one step closer to the business KPIs (e.g., over one year). The outcomes will translate to the KPIs of each division and then to the contribution of each employee. We then ensure that the sum of all the KPIs of the various divisions reconciles to the business KPIs. Once agreed, we design all the necessary metrics to help us monitor & measure performance (e.g., financial targets, employee engagement surveys, client satisfaction surveys, etc).
KPIs should become Key Performance Improvements?
If used and monitored well, KPIs help improve performance by acting as a reference point in a feedback process. But they should always remain subject to change and adjustments if they prove inadequate or ineffective.