How to use KPIs
Over the past few weeks I have been writing about the two ultimate measures of success in a mission-driven organisation: impact and value.
In both cases I have argued that approaching them in a quantitative way is useful, but surface-level, because they have a qualitative layer which is more fundamental.
I actually think that this is a general principle which is true for anything that we want to measure in an organisation. Underneath any metric, there is a deeper qualitative truth. And in particular it applies to performance management through KPIs.
To explain why, let me start with an anecdote.
I once hosted a talk by Mark Logan, the former COO of SkyScanner. He stayed in post as the team there grew from ~100 to ~1000. The key thing in that transition (he said) was to maintain a high level of agency. The way to check if you are succeeding at this is to keep an eye on levels of frustration. If the organisation starts to get in their way morale will plummet - particularly among your most talented employees. But how do you monitor frustration? This is the point that sticks with me the most:
“You can’t measure it by reading a report in a corner office. You actually have to go out and talk to people every day.”
I repeated this story to someone at an event I was at recently, and they said:
“But couldn’t you find that out by sending a staff survey?”
This response reflects the predominant way of thinking about management in organisations. It should be done, as much as possible, from a corner office, looking at reports. But I think this is totally wrong. To be a good manager, you have to get your hands dirty1. You have to go and observe what’s going on for yourself and talk to people. This is how you gather qualitative data2.
Relying on a staff survey to monitor frustration is like relying on numerical measures to understand your impact. These numbers can be useful - but they only go so far. If you don’t also look at the qualitative picture, you miss out on a lot of richness.
The same happens with Key Performance Indicators. Again, the dominant management culture suggests that everyone should be assigned KPIs, and then performance can be monitored without leaving the executive suite. But performance is like impact and value. It is a complex thing involving human beings, thinking and feeling, acting and interacting3. It lives in the messy specifics of the real world. If we do not go and observe the real world, we do not really understand performance.
We should consider taking a Theory of Change approach to performance management. We can treat KPIs like output measures. They are a useful proxy, but we have to make sure people do not become fixated on them as the absolute truth. Because output is never the real goal. Our job as leaders is to build a collective understanding of outcomes and our progress towards them. This is something we reach more through experience than measurement, more through narratives than numbers.
There is a saying at Toyota that “a manager washes their hands three times a day”. The factory floor is a greasy place.
Talking to people also encourages them to talk to each other.
There is no tape measure for relationships.