Businesses’ ability to remain profitable, much less scale up, depends on employees’ ability to fulfill their KPIs successfully, yet a poorly crafted KPI can precipitate an organization’s downfall. So, how can businesses determine if their KPIs are effective? And if they’re not, how can they go about improving them if they are not?
Here, Bryan Agpaoa, Director of Guidance for Cyberbacker, provides his insights into how businesses can maximize the efficiency of their KPIs using five key steps.
Table of Contents
Step 1: Use KPIs to clarify expectations
The function of KPIs is to help employees and teams clearly understand what a “job well done” looks like, drawing an explicit connection between organizational goals and specific performance expectations for individual roles. When productivity falls short of the KPIs, team members should be able to see where performance could be improved.
“Often, metrics that generate quantitative data help elucidate that vision, but sometimes, numbers don’t fully capture the picture,” Agpaoa says. “No matter what your KPIs are, however, ensure employees understand what will be used to evaluate their performance.”
If you’re unsure if your business’s KPIs are clear and hitting their mark, consider discussing them with the key team members and ask if the KPIs should be revised to capture the value of their work more effectively. Do they think their KPIs are clear enough? Are their current KPIs sufficient to capture the value their work provides to the organization? What new or revised ones would improve them?
To craft effective KPIs, make sure the people who have first-hand knowledge can weigh in and feel safe providing their honest perspective without fear of retaliation. “This shouldn’t be a one-time proposition,” Agpaoa explains. “As the business grows, it’s essential to adjust its KPIs accordingly, so check in with teams periodically to inquire about their KPIs.”
Step 2: Analyze ineffective KPIs to find their root causes
“In my experience, some organizations proceed with inappropriate KPIs because leadership or management doesn’t know the goal and are proposing metrics without firsthand knowledge of the process,” Agpaoa remarks. “In consequence, they pick particular KPIs just because they generate quantitative data.”
When businesses make this mistake, employees usually believe their leadership or manager is incompetent. Whether right or wrong, this perception has real consequences for workers’ productivity, performance, and retention. According to a recent survey, one-third of employees who described their managers as ineffective reported being less motivated in their work. Half said they were considering quitting within the next year.
“To identify issues with your KPIs, obtain data related to each, such as sales numbers, feedback from customers, and work performance metrics,” Agpaoa adds. “Analyze this information to spot trends that may be contributing to the problem.” Root Cause Analysis (RCA) tools such as Diagrams and Visual Reports, The 5 WHY Analysis, Failure Mode and Effects Analysis (FMEA), and Fault Tree Analysis can encourage deep and factual thinking and help avoid uneducated conclusions.
Once the root cause has been identified, conduct adjustments and observe the results. From these, managers can see which processes work and which do not.
Step 3: Provide constructive feedback and solutions
When developing KPIs and a reward structure, it’s essential to craft effective processes for exchanging feedback and intervening with individuals who aren’t performing up to expectations. After all, managers must ensure employees’ accountability and value to the organization.
“To be clear, KPIs should not be used to assign blame,” Agpaoa says. “When managers do this, it tends to make employees feel defensive and can also lead to lower employee morale, decreased engagement, inflated stress and anxiety, a rift in trust, and ruptures in communication.” Workplace cultures where team members blame each other are toxic environments where most employees try to leave.
Instead, Agpaoa mentions that KPIs should be approached as a starting point — a baseline from which individuals can grow and improve. Discussions of performance should take place from a forward-looking orientation that helps people rather than making them feel attacked. The goal of these meetings is to help employees improve and contribute to the overall success of the organization.
“Managers should approach these conversations with employees as a two-way conversation in which employees feel that managers support them,” says Agpaoa. “Don’t forget to use this opportunity to recognize wins and show appreciation for the KPIs the employee has met, which reinforces this positive behavior.”
When it comes time to draw the employee’s attention to KPIs where their performance needs improvement, be specific and objective. Avoid unclear statements and just focus on facts. Explain which KPIs aren’t being met and provide objective data as evidence. Frame this conversation in terms of improvement and learning rather than blaming.
“Also, consider asking employees how they feel about their performance,” Agpaoa says. “Chances are they already know their performance could improve and would like to do so.”
For their part, managers should ask how they can help support the individual and what would make them feel more comfortable in their role. They might also provide suggestions on how the employee can improve and hit their KPIs successfully. These suggestions must be realistic without deviating from or affecting the team’s operational standards. By arriving at solutions together, the employee is more likely to experience the interaction as a positive experience, and the manager is likely to come away from it with a greater understanding of that person and how to boost their productivity.
Step 4: Develop an Action Plan
If you are confident your KPIs are effective and need to hold an employee accountable for neglecting to meet one, it’s crucial to develop a formal action plan that documents how the employee will improve. This plan should include a statement of the previously unmet KPIs, any data that provides insight into why the KPI went unfulfilled, and a list of potential causes as well as the RCA tools used to identify them.
“Notably, a formal action plan should also explain the strategy the employee will use to improve,” Agpaoa explains. “This could involve changing procedures, the workflow, the schedule, or the employee gaining additional training. This section should specify that satisfactory performance on the other KPIs needs to be maintained while progress is being made on the previously unmet one.”
Finally, the action plan should explain what metrics and benchmarks will be used to evaluate whether the employee is making satisfactory progress. A timeline for improvement should also be spelled out.
Next comes the implementation of the action plan.
Step 5: Monitor progress and adjust as needed
“Managers need to follow through on the action plan, measuring and evaluating the employee’s progress,” explains Agpaoa. “If you don’t see efforts to perform the agreed action plan, or the employee simply doesn’t adhere to it, that individual may have low will. It may be necessary to let them go.”
That said, it’s important not to approach these action plans as infallible. A different action plan could still fix the issue. If part of the plan worked and others didn’t, learn from these insights and work with the employee to improve future action plans.
“Managers should also consider the possibility that the employee could be underperforming due to a toxic work environment,” says Agpaoa. “How do their colleagues treat them? What is their workload like? If so, the company’s culture may need to be addressed.”
After implementing each adjustment, continue to observe the KPI closely and check for improvements to help you understand if the root cause has been correctly identified and resolved. To reinforce the cycle of learning and make adjustments based on evolving circumstances, schedule these coaching sessions with employees at regular intervals.
KPIs are a ladder to success
Employees should see their KPIs as their ladder to success. Managers, on the other hand, should ensure subordinates are actually stepping up the rungs.
KPIs should be fair and effectively identify who the best performers are. If they do, they present a solid foundation upon which employees can be held accountable.
