Are KPIs the enemy of good leadership?

Not everything can be measured, but that doesn't stop us trying.

by Adam Gale
Last Updated: 16 Mar 2017

Data is the religion of 21st century business. Forget the false prophets of employee engagement, agility, tech or entrepreneurialism: numbers are what will get the board singing in the aisles.

To the faithful, data is nothing short of the irrefutable truth itself. Anything, from profit and performance through to wellbeing, can be reduced to an all-revealing number or chart. Those who can interpret them increasingly run the place. Those who can’t, to paraphrase W. Edwards Deming, are just people with opinions.

As with any religion, though, you will find the odd heretic. 'I'm an engineer and believe in measuring things but that’s a by-product,' management guru Tom Peters told me recently, while renowned academic Clayton Christensen warned MT about the dangers of using ratios to guide business strategy. Heaven forfend. You can almost hear the scandalised whispers in the City.

But what if the heretics have a point? Maybe measurements and targets are overrated. Maybe our obsession with KPIs is getting us in trouble.

‘Would you review a book based on the number of pages it has?’ Asks business performance consultant Chris Pearse. ‘It’s risible. You might want to know if it’s a 1500-page job that will keep you going all holiday, or if you’re spending a fortune on a ten-page coffee table book, but the whole raison d’etre of a book goes far beyond the physics of it. The same is true with any organisation.’

Pearse is quick to point out that, as a trained engineer, measurement is close to his heart. KPIs, he insists, are still fundamental to running a business, they’re just not sufficient. The problem is that we don’t seem to realise this fact.

‘I get cheesed off when people try to measure things that are palpably not measurable. A lot of companies purport to being able to measure employee engagement for example. You may say I’m being pedantic, but no you can’t measure it, you can assess it. To measure you need an absolute standard, such as a volt or an inch, that’s repeatable and that everyone understands. What’s the unit of measurement for engagement, a smiley face? It’s totally arbitrary.’

The distinction between measurement and assessment is an important one, because once we elevate something to data, we start basing decisions on it even when it goes against our better judgement.

This can lead to some unfortunate consequences because, in business as in quantum mechanics, observing something changes the thing being observed, and not always in a good way.

Measuring people against targets encourages gaming (think a car-park full of patients being kept in ambulances so the A&E department doesn’t flunk its waiting time targets) and short-term thinking. The nature of the stock market, for example, encourages short-termism in managers whose careers are dependent on meeting certain numbers.

‘It totally demeans the raison d’etre of the organisation and the real value they’re actually delivering to society and stakeholders. It’s insidious,’ says Pearse.

The way round this is to make sure firstly that we don’t measure things that can’t be measured and secondly that we accept that we can’t reduce business to a mechanics equation. The relevant working parts of an organisation – the employees, the customers, the investors and yes, even the boss – are human beings after all, and humans are unpredictable, emotional creatures.

It may just be that the best way to figure out whether your employees are engaged is not to perform psychometric tests but to talk to them. Stranger things have happened.

All this is a scary prospect for people who like hard facts and logic, and who dislike ambiguity. (Possibly because, as a school of academics led by Daniel Goleman suggests, we don’t make decisions based on reason at all, but on feelings which may or may not be affected by whether we believe a decision to be rational.)

It doesn’t mean, however, that we should abandon KPIs and metrics and apostasise from the church of data. What it does mean is that we should be open to the possibility that data doesn’t have all the answers. That way, you can respect quantifiable measures for what they are, while still keeping a place for good judgement.

This article was originally published on January 18.

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