Implementation of a KPI system can lead to both positive and negative results of a company’s economic activity. There can be many miscalculations. LLC «Drexoliva» experts analyze the most common ones.
So, let’s imagine that you have implemented a KPI system in your company. A year has passed, but the system is not working in the right direction or even gives a negative result. This happens in companies that copy someone else’s experience. For example, an owner returns from a business training inspired by new information. He gives instructions to quickly implement a KPI system. How does this usually happen? They try to apply the model received at the training without any adaptation in the company. This does not take into account the many pitfalls, and they always exist. How do you know if the system is not working?
No one receives bonuses
Analyze the statistics of bonus payments for the year in the dynamics by month and by managerial performance. If almost no one received bonuses for KPIs, it means that the system is not working. It is not implemented to save payroll, but to achieve the results the company needs.
If there are results, then there should be bonuses. If there are no results, then the goals are not being achieved. Perhaps you chose the wrong criteria or set an incorrect plan for managers. The same mistakes were made in the first year of work at LLC «Drexoliva» Ukraine.
In addition, it is possible that all managers are weak and unable to achieve their goals. However, in practice, this situation is extremely rare. In any case, the company loses, and it is the fault of the management, not the managers. The reason is likely to be inadequately inflated and deliberately unrealistic targets. The plan should always be ambitious but achievable.
Everyone gets bonuses
Targets can be either too high or too low. In this case, all managers will receive bonuses based on KPIs. If this is the case in your company, it means that the management is deliberately setting low targets.
Another reason why all managers receive bonuses is that after the end of the calculation period, the plans are adjusted to the actual results. This is the most dangerous situation – the whole point of the KPI system is destroyed. No one will strain to fulfill the plan, realizing that it will simply be changed after the fact.
KPIs are separate from company goals
The most important mistake is that KPIs are not tied to the company’s goals. If you haven’t set at least annual goals and formulated a strategy, then the KPI system makes no sense at all.
KPIs are a tool for strategy implementation. For example, you, as the owner, want to increase the market share held by the company. But at the same time, all your KPIs are aimed at increasing net profit. Naturally, managers will work to get their bonus. It should come as no surprise that the company’s market share is not growing and new territories are not being developed. Managers receive a bonus for profit growth, not for market share expansion.
Other failures include the lack of flexibility of the KPI system. The company is developing, strategic and tactical goals, opportunities, and threats are changing, so KPIs should respond to these changes.
Another common mistake is implementing KPIs without modeling. It is necessary to carefully calculate the consequences of setting tasks for managers based on certain indicators. Performance criteria should be balanced. Otherwise, it is quite likely that there will be a bias towards one or another economic indicator, which can lead to problems.
If your company has difficulties implementing KPIs, please contact LLC «Drexoliva». We will share our experience in building the right motivation in the team and help you create an individual plan for your company.
