Key Performance Indicators are too often treated as an oracle’s voice from a magical source, warns Jan Ketil Arnulf.
DEBATE: Jan Ketil Arnulf on Leadership
"Do you avoid the dangers of indicator-driven management?" I was asked in an e-mail I received recently.
The sender, a reputed management institute, warned against the dangers of using performance indicators, or so-called "key performance indicators" (KPIs).
I could only conclude that the author would just replace the old indices with new ones (their own).
We live with an abundance of information. Key Performance Indicators are simplifications that claim to reveal if managers are on the right track before results are actually obtained. They are too often treated as an oracle’s voice from a magical source.
This is just like the old superstition when certain events - such as a black cat crossing the road - were interpreted as signs of an upcoming event or accident. Many would argue that indicators are expressions of actual causal relationships and are in this sense "scientific.” Such claims often do not withstand closer scrutiny.
Three well-known misinterpretations
Performance indicators are vulnerable to three well-known misinterpretations:
1. Reliability: The measurements are too influenced by chance, as some feel about oral exams.
2. Validity: Can we draw conclusions based on the performance indicators? Will satisfied customers always be more profitable?
3. Habitual thinking: Is the indicator the best expression of what we are trying to measure, or should we think again? Indicators that are both reliable and valid will only make you better at yesterday's solutions. The purpose of the performance indicators is to put control in front of thinking.
Post-it notes began as a production error. Disturbingly, many leaders were bad at school. The discovery of America was a disappointing miss of India. I have seen leaders destroy businesses by misguided faith in customer retention indices. I have seen people perish when they think the grades from school are descriptive of them. However, throwing around the proper abbreviations is still good for their career.
Stay clear of the indicator trap. Thinking is difficult and confrontational, but a useful servant to human beings. My guess is that this will last a while.
This article was published in Fudan Business Knowledge, January 2015. The Fudan Business Knowledge is a digital magazine published by the Fudan University School of Management.