For organizations it is always a challenge to balance between delivering numbers (ex: quarterly financial results) and balance our long term strategic priorities (ex: new business). At an individual level also we face similar dilemma, especially at leadership levels.
Typically in annual business planning activity would identify certain goals with specific targets. Popularly known as Key Performance Indicators (KPIs), these numbers take multiple forms: sales quota, revenues, improving efficiency or delivering some number of patents, depending on the type of organization. Linking KPI with business definitely helps to bring focus in leadership team. This will also help to measure results in as numbers demonstrate “unambigiousness”. If the organization is big enoug, this is typically what key stakeholders (customers, share holders, investors and employees) look forward in terms of Return of Investment (ROI).
In my opinion, this KPI oriented model has its own disadvantages when taken into extreme. When the leadership team is completely focused on delivering numbers, many bigger and strategic opportunities will go out of the window or gets missed. From people perspective when they come to know that they are measured only based on numbers, they will do anything and everything do make “numbers look good”. Many of the corporate scandals, sudden collapse of a leader or a business unit is mainly because of the polarized focus towards ‘number crunching’. When extremely high amount of importance and focus is given for delivering numbers, original thinking process gets restricted in leadership team, because of which organization may not forsee potential opportunity in the future, leading to sustainability issues in business.
On the other hand taking the KPIs out of the management system will create accountability issues. The whole organization might look to be doing something which is really long term and strategic but never oriented towards providing tangible results/benefits to the organization. The difference between “articulation” and “accomplishment” will go away where people will assume doing former is same as later.
The real spirit should be to use KPI as “indicators” to really get realistic view of what exactly happening in ground zero. In case of an individual business unit or a leader is failing to deliver on his numbers, proper introspection should be done by senior level leadership to make it better or take some strong decision. Simply put in Jack Welch’s terms, leadership team should be able to take a choice from “Fix, sell or close”. When there is an opportunity to fix the issue, corresponding leader should be given necessary opportunity and empowerment to “openly” say his numbers are bad and put in actions to close gaps for making things better.
KPIs should indicate something which should be reflection of reality, so that actions are taken to solve real time issues. The more realistic those actions are, better the organization becomes. Next time you get an opportunity to check some numbers, ensure you read the “meaning” behind those numbers.