Avoid Harmful KPIs With 3 Tips From Behavioral Psychology

I am surrounded by KPIs. The infamous Key Performance Indicators. I provide advice to customers concerning KPIs related to customer experience. Ennova has KPIs that my colleagues and I are diligently cooperating to achieve. I have my own personal KPIs as an employee. When I am home from work, I have assigned myself a bunch of additional KPIs as a competitive runner. And I have also assigned myself a literature KPI, where the goal is to read 100 books in a year (and I am lagging behind).

KPI, KPI, KPI and yet another KPI. Does that sound like a nightmare? To me, it is more like a dream I do not want to wake up from.

Poor targets lead to harmful behavior

However, what fascinates me with KPIs is the same thing that makes them dangerous: They strongly affect behavior.

When designed incorrectly, they have the opposite intended effect on behavior.

The financial crisis in the US was aggravated by people within banking and finance who had inappropriate KPIs. In a slightly different genre, we have customer service centers where employees cut off phone conversations because they are being measured according to AHT (Average Handling Time).

A salesperson who is only awarded a bonus for new sales and not on re-sales, in an industry where loyalty is a key factor, can potentially neglect a large part of the business.

There are countless examples of harmful KPIs.

However, when the KPIs are correctly designed, they are very valuable for the organization.

KPIs are all about behavior

An effective KPI requires in-depth knowledge of human behavior.

But how do you acquire this knowledge?

One place to start is with American psychology professor Adam Grant. He is the author of a very interesting book on the behavior that is necessary to generate (positive) changes in an organization, Originals – how non-conformists change the world.

He collected knowledge from almost 1,000 publications across research fields (I counted the reference list myself). Taken alone, his book has nothing to do with KPIs. However, on closer inspection, it actually does.

The idea behind establishing a central target is to affect our behavior, based on what is best for the organization and its purpose. And the book is precisely about finding the right way to do things to achieve a positive result.

Below, you can find three of the professor’s recommendations, which you can use when establishing targets that guide behavior (in the right direction):

1. Quantity generates quality

Beethoven wrote about 650 symphonies, of which only 5 became masterpieces according to London Philharmonic Orchestra. Mozart’s rate was 6 out of 600. Edison had a handful of inventions that were commercial hits, but over 1,000 patents never really broke through.

Grant indicates that quantity is necessary in order to (occasionally) achieve quality!

We cannot determine ourselves (as I will return to later) whether we have created a masterpiece – but the probability increases the more we produce.

A hypothetical scenario:

The Sleepy Duck is a large hotel chain that would like suggestions from its employees on how to improve the experience of its guests. They therefore set up an idea box on their intranet and offer a prize for the best idea. At the same time, they make it clear that they only want ideas that are thoroughly thought through. That way, the main office will not waste time sorting through numerous bad ideas.

On the surface, it seems very logical to focus on quality and thoroughness. But the creative process is too limited. Who would dare to register an idea if they do not feel certain it is a good one? Very few would. Instead, the employees should be equally rewarded for the quantity of their ideas as well as the quality.

2. Let the right person determine what is good and bad

We are poor at determining the quality of our own ideas. Our enthusiasm for the idea clouds our ability to distinguish the good from the bad. This also applies to areas where we actually have a great deal of experience.

So, should we go to the boss? The professor says no. The boss, unlike you, is far too critical. It is far better to let one of your (experienced) colleagues evaluate it.

Let us return to our hotel chain, Sleepy Duck, which has now changed its procedure for the idea box to focus more on quantity. But now they are swamped with ideas, and the managers and economists at the main office are having a hard time distinguishing the good from the bad.

Management therefore decides that the employees in the hotels have to be more involved in assessing the ideas of their peers. They are in contact with the guests and can best determine if an idea is brilliant or insane.

The KPI is thus measured both as a target for the number of ideas (good as well as not-so-good) and that a small portion of these ideas should obtain a score of at least four out of five stars from colleagues.

3. Great transformations by doing what we normally do

When an organization has to undergo large transformations, it will often encounter great internal resistance. It can be difficult for people to change their values, opinions and norms right away. Instead, focus on appealing to the values the employees already have. Get them to act on that basis, in a way that supports the transformation you want to achieve.

The Sleepy Duck wants to become more digitized. However, management senses that the employees in the hotels fear that digitization would render them unemployed. As part of the digitization project, management therefore decides to implement yet another adjustment of the idea box.

They change the design so that the employees can contribute good ideas in two categories. 1) Ideas for how the guests can better learn to use the new digital services, and 2) how the employees can use the saved time to further improve the experience of the guests.

The employees receive an extra reward if they can come up with just as many 4 and 5-star ideas in each category.

KPIs should motivate desired behavior

I have deliberately chosen three points from Grant's book where the link to customer experiences and associated KPIs is not necessarily immediately apparent, but where a little reflection will uncover the connection nonetheless.

My point is quite simply that KPIs are about motivating desired behavior and, in particular, about avoiding targets that motivate inappropriate behavior.

We must avoid falling into the trap of setting targets without doing the preliminary work of translating them into behavior. This all too often causes, that we fail to succeed.

By the way, Adam Grant’s book is the fourth book I read in 2018. According to my plan, I should have read twelve. I am far behind my self-imposed book KPI of reading 100 books this year. Perhaps I did not do the preliminary work adequately and thus designed my KPI all wrong?

After all, I did come up with it on New Year’s Eve after a few glasses of champagne.