Using KPIs and Measures in Performance Management

Many organisations have performance management systems that consume enormous amounts of time but produce little improvement in performance. Employees complete performance contracts, managers conduct quarterly reviews, Human Resources consolidates scores, and executives present colourful dashboards to the board. Despite all this activity, projects remain behind schedule, customers continue to complain, costs rise, revenue targets are missed, and poor performance is repeatedly explained away. The organisation measures a great deal but manages very little.

The problem normally starts with the quality of the measures. Many performance contracts contain activities presented as Key Performance Indicators, targets selected without evidence, and measures over which employees have little influence. Some contain so many indicators that employees cannot tell which results matter most. At the end of the year, managers are forced to rate people using measures that were defective from the beginning.

A good KPI system should make the organisation’s priorities clear, show whether its strategy is working, identify performance problems early and guide corrective action. It should also provide credible evidence for decisions about recognition, development, promotion, remuneration and accountability. When properly designed, KPIs help managers move performance discussions away from opinions and personalities towards results and evidence. This article explains how to design and use KPIs as part of a practical performance management system.