The Hidden Downsides of KPIs

You might be struggling to find an article on this blog which doesn’t advocate Outcomes over output in one way or another. However, the more I think about outcomes, the more clearly I see their downsides. Focusing on outcomes is not enough.

In our complex world KPIs can give us a false sense of control. They ignore the chaotic nature of our lives and reduce humans to numbers. I mostly focus on KPIs in this article but the same ideas apply to objectives, targets or key results.

Fighting chaos with rationality

An emphasis on outcomes makes rationality the maxim. It’s our attempt to make sense out of this incomprehensibly complex world. By trying to control such a world we understate the interconnectedness of things and overstate our own role. Chaos theory is a heavily researched field because it’s such a defining factor of our lives.

Chaos: When the present determines the future, but the approximate present does not approximately determine the future.

Edward Norton Lorenz
Generated with Stable Diffusion v2.1

The importance of luck and randomness

Successful people rarely attribute their success to coincidence but hard work or higher intellect instead. However, there are many factors we can’t influence which make many smart and hard working people unsuccessful. Luck and randomness shape a huge part of our lives. Much of tensions can vanish once we come to terms with this fact.

Our KPIs are biased towards what’s measurable

With rationality as our ideology we inevitably focus on what’s measurable and dismiss what’s not. Even worse we often focus on what’s easily measurable like profits rather than customer loyalty, even though the latter will define your long term success much better than the former.

KPIs create tunnel vision

We’re tempted to look at KPIs in isolation. Any effort, be it a feature, project or marketing campaign, tries to pay into one or maybe two strategic goals. From the aspect of focus and efficiency that’s smart. Your feature might increase the goal of app usage but how does it impair usability (which might not be a KPI right now) in the long term by cluttering the navigation? That fancy new banner might increase conversion by 1% but it might also push 10% of people to install an ad blocker or subconsciously flag your product as just another money grab. Those examples might sound unrealistic but the point is that we tend to look at our goals and efforts in isolation and understate the connectedness, complexity and uncertainty of things. Life is more nuanced than your KPIs make it seem.

Reality is subjective and fragile

It’s easy enough to set a target and check if it’s achieved. But how do you know your target was a good one? Let’s say you develop an app which finds the nearest vegan ice cream place. Your month over month growth is about 7%. You set a goal to reach 15% instead. How do you come up with this number? You start with your current growth and try to make a prediction with all the information you have. But you will have to make the effort and check every assumption that led to this target or admit that you’re only playing an unscientific guessing game. Maybe you’re just overachieving because you’re underestimating?

The same problem with target setting happens with attribution of success. How can you be certain about how you achieved your target?

How do you attribute success?

It’s never just about the outcome but also about who did what. Only then will you be able to focus your efforts and reproduce your success.

Friday you released a grand update to your ice cream locator and the following weekend shows explosive growth. How much of that growth can be attributed to the feature? How much to the weather? How much to your marketing campaign from a few weeks ago?

If you have been in business for a few years already and have collected heaps of data there are ways to get beyond such problems. Facebook’s open sourced Prophet is one of such tools. But this leads to an ever more complex work stream of numbers crunching. Ultimately you will discover the same problems of attribution on a more fine grained level. The question is only at what point you stop digging and rely on your instincts.

Hierarchical KPIs create distractions

In larger organisations it’s almost impossible to have a single team own the whole value creation. There are two scenarios for this:

  • Fully-owned, isolated KPIs
  • Collaborative KPIs

Fully owned KPIs are proxy metrics. They capture a part of the value creation. They could measure an unimportant factor or lead to pointless local optimizations.

Collaborative KPIs have shared ownership. They suffer from the problem that your work is detached from the overall goal because there are too many factors contributing to it at the same time. This pushes individuals to emphasise and advertise their contribution. This might sound egocentric at first but when you think of it, it’s just a desperate attempt to infuse meaning to your work.

If your organisation is set up to celebrate and reward contributions to KPIs you also encourage a system of self promotion and ego.

Targets are easy game

Targets mess with our inherent desire to maximize our potential. Managers make sure to spend all their budget by the end of the year out of fear of a cut in the following year. Sale targets cause the same problem. A target which stretches people too far will demotivate people and push them to compromise on quality, take shortcuts and cheat. Attainable targets will be stretched out, just like Parkinson’s law predicts: Work expands so as to fill the time available for its completion.

Drop the goal setting and such games will disappear.

Enjoy life in true colours

What’s the whole point of KPIs? We want to be more effective, optimise our efforts and know where we’re standing. However, ultimately they are also a tool of control and division. They separate the achievers from the distractors, between decision makers and the workers. It reduces people and teams to their measurable impact which sucks the joy out of work.

What could we achieve if we acknowledged all sides of our humanness?

While this sounds utopic it is the reality for many self organising teams thoroughly examined in Reinventing Organisations already.

Base decisions on your values rather than KPIs

Probably you sense there’s something wrong with modern work life and the crude rationality might be one aspect of it. I think goal setting and performance measurement are an important part of thriving organisations but there is something beyond rationality and measurability.

Maybe we’re better off encouraging intent. We need to acknowledge our limitations and focus on what’s really in our control. Drop the rigidness and open our eyes to change. This is a grand opportunity. We can be guided by our values and intuition more than our performance indicators.