KPI's – Incentivising with numbers

Performance measures have been a part of human societies long before organisations and financial numbers were. How many fishes per day to feed a village? We may not have called them performance measures, but as a human species, we've been living with them since needing to do something to achieve something else!

In modern organisations, performance measures involve the use of one or more numbers to tell stories about how we're going (performing). In many organisations, they're used to judge how well individuals have gone and determine their bonuses, but also how departments, projects, teams or organisations fared in a period, or at any point in time.

Adverse consequences

By measuring what organisations do using numbers, and then linking employees or organisational units to these numbers, we're using these numbers to motivate staff and business units to behave in ways we'd like them to. But in doing so, we also open avenues for employees to "play" with the numbers, or engage in real-world actions in order to make numbers look better – not for the betterment of customers or organisational objectives, but simply the numbers.  This can have adverse longer-term consequences for organisations.

Give a delivery driver a bonus based on the number of deliveries per day? Makes sense, till you hear customers complaining that their deliveries are damaged because the driver's working too fast and hastily. Give a car salesperson higher commissions for more cars sold? That's what you'll get, but remember to insert price minimums so your sales staff don't sell your products for a dime in order to make an extra sale. If your performance measures are revenue-based, staff will forget about costs and profits. If your measures are focused on speed and efficiency, you risk quality and customer satisfaction being forgotten. All performance measures have incentive effects, and designing and using one, let alone multiple performance measures to motivate and shape employee behaviour is a complex science that can be learned. Finally, paying someone a larger bonus may actually cause behaviours to deteriorate… yes, get worse!

Good systems can better motivate employees

Have no doubt that good systems can change behaviours if designed properly. Remember the old bus, train and ferry tickets in the Sydney transport system? No one wanted to scan them at the ticket counter when entering or exiting stations or buses as doing so was considered a waste of time. Big data in public transport was less relevant as a result, hindering public policy decision making. Then Opal cards were introduced as the new ticketing system. How much you pay is contingent on where you scan on and off.  The change in public behaviour could not be more stark. Now, everyone lines up to scan their cards and data in the public transport system is as good as in any other sector in Australia, supporting better policy making.

Use performance measures to better motivate your employees to achieve your goals, in ways that are positive for your organisation.

Reach out to Plus UTS Business Futures to help you and your fellow staff build their awareness and capability in this space!