Many scandals that hit the headlines can be traced back to targets being set on too limited a selection of KPIs…
 

• Volkswagen says diesel scandal has cost it 31.3 billion euros - Reuters, March 17th 2020
• PPI In Numbers: A Look At The Scale Of Britain's $59 Billion Consumer Scandal - Forbes, Aug 29th 2019
• NHS targets 'may have led to 1,200 deaths' in Mid-Staffordshire - The Telegraph, March 17th 2009

 
How do we make sure we target the right KPIs?
When you are doing some home improvement work, choosing the right tools is crucial. A screwdriver is the perfect tool for putting a screw into a piece of wood; it's a lot less useful for hanging wallpaper. The screwdriver is neither ‘good’ nor ‘bad’, just ‘relevant’ to our goal or not. The same is true for our choice of performance measures. In business, our ‘job’ is delivering our organisation's intended strategic outcomes. 

We need to identify the relevant KPIs to target. To do this, first we need to identify the right things to measure. We do this by breaking down our top-level objectives into smaller, more specific outcomes and use these to identify the indicators of success. The tool we use to do this is a visual tool called a KPI Tree. 

Here is a simple example. This is a KPI Tree for the personal objective “Be healthy”….

Again, using the DIY analogy, it's unusual to be able to complete a meaningful DIY job with just one tool. It’s also unusual to have a single performance target that completely summarises the thing that you care about. Yes, profitability can be completely described by the KPI “profit” and a particular target figure, but it doesn't tell you how or why you achieved that figure or what to expect in the future.

In practice, most meaningful strategic objectives we care about need several indicators and targets to give us a complete picture. Using a multi-target approach will create a much more balanced outcome and substantially reduces the chances of the system being ‘gamed’ by those responsible for delivering the targeted outcomes. It takes more time and effort to set up than a ’single KPI’ target system, but it could be the difference between reaching your goals and hitting the news headlines for all the wrong reasons. 

To learn more about a systematic method for identifying the right targets and incentives for your organisation head to the K2 Enterprises course GAMED: Why targets and incentives fail and how to fix them.

We have all experienced the impact of dysfunctional targets and incentives. Whether it’s the pushy salesman striving to hit his sales target for the month or a policeman who is reluctant to record a crime because they think they won’t be able to ‘clear it up’, poor target and incentive design affects us all. 
 
The effectiveness of targets and incentives is affected by a complex interaction of multiple factors. Fortunately, many of these issues fall into a pattern. Over thirty common issues have been identified and documented as part of the ROKET-DS target and incentive design diagnostic toolkit, developed by Made to Measure KPIs. 
 
Poor management behaviours are a critical issue, as they often magnify other target and incentives problems. Management failings typically fall into one or more of these three buckets...
 
Weak enforcement
Rules require enforcement, or the threat of enforcement, to be effective. Any visible failure to enforce rules relating to targets or incentives can lead to rapid collapse of that system. Weak enforcement, whether deliberate or accidental, is an ‘accelerant’, it will not normally cause failure on its own, but it will magnify the impact of other issues. Collapse will often show as cheating, disengagement or complaints.  

A high-profile series of examples of weak enforcement have come from HSBC. HSBC have been repeatedly prosecuted for anti-money-laundering (AML) failings. One of the more prominent series of breaches resulted in a $1.9 billion fine for the bank in 2012. It would be surprising if the lack of anti-money-laundering enforcement was not driven, directly or indirectly, by the desire to hit profit targets and personal bonuses.

Negative leadership behaviour role-modelling
The members of any organisation will usually closely ape senior management behaviour. A leader who is seen to cheat, bend rules or break the law will be perceived as giving approval to the rest of the organisation to behave in the same way. 

In September 2016, the US bank Wells Fargo was fined $185 million for opening two million checking and credit card accounts without the consent of its customers. On October 12th 2016, John Stumpf, the CEO of Wells Fargo, stepped down. Stumpf received a lifetime ban from the banking industry and was strongly criticised by the outgoing Chair of the Board of Governors of the Federal Reserve System for ignoring the bank’s poor risk management programmes and failure to initiate any serious investigation into sales practices. 

Intense management pressure
There are many ways in which a manager can apply pressure to their underlings. It can come in the form of shouting, frequent requests for updates by email, bullying, public reprimands or intentional humiliation. Whatever the form, high levels of management pressure can push people to do things they would not normally be comfortable doing. The basic desire to retain social status and the ability to feed and clothe your family can be a very strong motivator. 

In Wells Fargo Shelly Freeman, who ran the Los Angeles region until 2009 then the Florida region, had district managers 'run the gauntlet'. This involved dressing in a themed costume and running down a line to a whiteboard to report their sales numbers. During the period Q2 2007 and Q4 2012 sales-practice misconduct increased three-fold.
 
Setting effective targets and incentives isn’t just about finding the right KPIs to target and setting the bar at the right level. Time and again we see that leadership behaviour counts and is closely observed and aped by subordinates. 
 
To explore all 33 failure modes that form the full diagnostic, head to the K2 Enterprises course GAMED: Why targets and incentives fail and how to fix them.

The news headlines are filled with stories of targets and incentives that have gone terribly wrong. Many of these issues are caused by mistakes we all make. Here are five of the most common problems, and how you can avoid them…

1. Targeting the wrong metrics

Challenge: Target designers will often assume a link between the thing they target, for example ‘Value of sales’ for a sales team, and the thing they are really aiming to improve. In the case of a sales team, we are not trying to improve sales value, but rather profit.

It is easy to target on one or two highly visible KPIs assuming that optimising those will lead to positive business outcomes. This can be a mistake. Take call-centres as an example. Targeting agent ‘average handling time’ might seem to make sense, the logic being ‘If we can handle more calls per hour, we will have higher productivity, lower costs, shorter wait times and happier customers’. In practice, targeting just Average Handling time can lead to all kinds of dysfunctional behaviours, including…

• Passing calls to second-line teams just to ‘stop the clock’
• Hanging up on customers mid-call
• Finding ‘tasks’ for the customers that require them to hang up and call back later

Solution: Use a KPI Tree to identify the full range of KPIs that influence our ultimate business goals, how they interact and potential  conflicts with maximising individual KPIs.

2. Underestimating your team’s ability to ‘game’ the system

Challenge: Humans are highly skilled at making the most of any situation. Targets and bonuses can bring out extreme ‘creativity’ amongst those being targeted. There are countless ways in which target systems can be gamed. 

Examples from the world of sales include…

• A salesman asking a customer to place a major order to help him hit his monthly sales target, on the understanding that the customer will cancel the order shortly after the sales month closes
• A salesman shipping scarce stock out-of-state, so he can honestly tell his peers that he has no stock, before the stock mysteriously re-appears when needed 

Solution: Run a ‘reverse brainstorm’ with the team members who will be striving for the targets. Ask the question ‘How could team members hit the target, but in the worst possible way?’. A full explanation of how to run a reverse brainstorm and a detailed checklist are included in the KPI Academy GAMED course.

3. Not reviewing targets often enough

Challenge: It is tempting to set target reviews to minimise administrative effort, perhaps annually.  This is a mistake. Research by Tom Steenburgh shows that simply switching from quarterly to annual bonus reviews led to a 10% drop in performance amongst the weakest performers, a 4% drop amongst ‘core’ performers and a 2% drop in the performance of ‘star’ salespeople.

Solution: Experiment with more frequent target and incentive reviews until you strike the right balance between effort and results.  If the review process is hard work, invest some improvement effort to make the process smoother and simpler. If you currently use annual reviews, switching to more frequent reviews could be the easiest performance win you make this year. 

4. Trying to fix problems with targets

Challenge: When a business is in a tight spot, it can be very tempting to use wildly ambitious targets and incentives to motivate your team to find solutions. This may work if the team have full ‘agency’ - the time, skills, resources and authority - to pull it off. More often it results in rule bending, cheating, law-breaking and acute employee stress. 

Solution: Avoid using targets to push unresolved organisational issues onto your team. Carefully check that the team has the time, skills, resources and authority to achieve if you decide to set ambitious stretch targets. You will also need to put extra time, effort and attention into policing the rules of those targets and incentives. If you don’t, you may pay the price through reputational, legal or operational problems.

5. Just focusing on your star performers

Challenge: Top performers are often the focus of targets and rewards, dominating the attention of their managers. 

In practice, the majority of team members in any organisation are not top performers. Simply focusing targets and rewards on top performers leaves a huge slice of potential improvement on the table.

Solution: Treat your team, and their targets, as a portfolio. Create targets and incentives that are realistic and motivating for all talent levels in the organisation. This portfolio approach has the potential to unlock much bigger organisational gains.

Getting more help with your Targets and Incentives
There’s a lot behind effective target and incentive design, but it doesn’t have to be complex.

For a clear, simple and effective approach to designing and implementing targets head to the K2 Enterprises course GAMED: Why targets and incentives fail and how to fix them.

The process of setting up an environment of motivation in an organization, where employees and managers are reviewing themselves regularly, is known as performance management. This article lists 5 Performance Management Tools categories. These tools work towards the common goals of the organization, and support techniques needed for the growth of any organization.

Organizations need to follow performance management techniques. Why? Because they help make the workforce more skilled and efficient.  Performance management also helps increase the overall productivity of the organization. Moreover, if an organization does not follow a performance management system, it frequently fails in the process of employee motivation. Because of this, their employees become directionless and disengaged from work.

Performance Management acts as a vital process for modern organizations. It helps organizations become more successful and to stay ahead of the competition. Mainly, Performance Management involves measuring, reporting, and managing the progress of the organization. Finally, Performance Management improves the performance of the organization both at an individual and corporate level.

Every organization, whether commercial or non-commercial, chooses to monitor their overall progress yearly, monthly, or weekly. Some organizations do these checks daily or continuously. The frequency of monitoring depends on the amount of work and the type of organization. To help keep track of the progress, organizations choose one or more of the many useful Performance management software and tools are available. These tools simplify the work of the organization and also provide benefits to the employees. These Performance management tools are: 

• Performance Appraisals
• 360-degree Feedback
• Key Performance Indicators (KPIs)
• Personal Development Plans (PDP)
• Reward and Recognition Programs

These are the top 5 Performance management tools used by most of the organizations. Each of these tools has its benefits, features, specifications, and flaws. Each organization must decide which type of Performance Management Software is suitable for their organization according to their needs, demands, and growth.

Performance Appraisals are one of the commonly used top 5 Performance management tools. Above all, Performance Appraisals are a potent tool for matching goals of the individual to the common goals of the organization when used correctly.

To get the best information and correct output from this tool, employees need to take care that the Appraisal process is honest, fair, regular, and constructive. In addition, two-way communication should take place. In other words, you must be mindful of these points, appraisals can be demotivational for the organization and can lead to a decline in the performance of the organization. Also, appraisals also help identify the team members who are not performing up to expectations. Further, appraisals also help management spot those who have landed in the wrong job.

360-degree Feedback tools usually deal with the evaluation and assessment of the employees who could be either internal or external. However, the main question which this tool must answer is, “How well are the employees performing?” Further, it provides every individual of the organization with a detailed assessment of their performance based on the views of the people for whom and with whom they work.

These people include the Supervisors, Managers, Colleagues, Customers, Suppliers, Agents, and everyone that touches an organization. The reports or the results are always confidential and are usually presented to the employees by their managers. Therefore, 360-degree Feedback tools are good measures in initial employee training and development. Above all, when this tool is used effectively and efficiently, it helps in simplifying the review process as it considers the opinions of many people instead of reviews of just the manager of the employee.

A KPI is an excellent Performance Management tool.  KPIs provide different ways to measure how well the organization, its units, projects, or the individual employees are performing to meet the organizational goals and objectives. In addition, KPIs are also a form of HR measurement. KPIs function not only in terms of measurements but also enable performance conversations.

These data-driven conversations also help in making better decisions for the organization. Well-designed KPIs act as an essential navigational instrument, which gives the exact and clear picture of the current levels of the performance of the organization. KPIs also show whether the business has achieved its goals and objectives.

A personal development plan is an expertly and efficiently designed action plan. PDPs are based on the needs, wants, and awareness of the actions that are going to support both personal and organizational development. PDP’s are most often used to identify various types of training and development needs. In other words, creating a Personal Development Plan is an action plan for fulfilling these needs. It helps individuals to define how they want to grow and to find out how they can achieve their goals.

Personal development plans build the interest of the individual towards the company and help them improve their performance in the organization. To ensure high performance of the organization, different Performance Management tools, techniques, and processes like the PDP, act as an essential part of the organization for increasing performance while supporting personal growth.

The excellent performance of the employees should always be praised and rewarded. Motivation disappears when employees feel unappreciated. In other words, their hard work and excellent performance go unrecognized and unrewarded. Demotivation makes the employees deviate from the organization’s overall objectives and goals. Therefore, every organization should organize rewards and recognition programs, which are an essential part of the whole performance management system of the organization.

Recognition programs also help in celebrating the high performers of the organization. In addition, many big organizations think reward and recognition programs as a source of distributing financial rewards and incentives like bonuses and increments. Still, pure praise and recognition of hard-working employees is an essential aspect of maintaining morale and the high performance of the employees.

If you select and use these 5 Performance Management Tools, you will find that your organization and your people perform better and feel better about the work.

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