Mistakes in KPI system implementation
Let's assume that you have implemented a KPI system in your company. A year has passed, but the system does not work in the right direction, or even gives negative results. This happens in companies that copy someone else's experience. For example, an owner returns from a business training course inspired by new information. He gives an order to implement a KPI system quickly. How does this usually happen? They try to apply the model they received at the training without any adaptation in the company. They do not consider many pitfalls, and there are always pitfalls. How do you know that the system is not working?
Nobody gets a bonus
Analyse the statistics of bonus payments for the year in dynamics by month and by manager performance. If almost no one receives bonuses based on KPIs, then the system is not working. It is not put in place to save money on salaries, but to get the results the company needs.
If there are results, there should be bonuses. And if there are no bonuses, then the targets are not being met. You may have chosen the wrong criteria or set the wrong plan for managers. The same mistakes were made in the first year of BinomCraft Ukraine.
It is also possible that all managers are weak and unable to achieve their goals. In practice, however, such a situation is extremely rare. In any case, the company loses, and it is the management's miscalculation, not the managers'. The reason is most likely to be inappropriately inflated and knowingly unrealistic indicators. The plan should always be ambitious but achievable.
Targets can be either too high or too low. In this case, all managers receive KPI bonuses. If this is the case in your company, it means that management has deliberately set low targets.
Another reason why all managers receive bonuses is that the plans are adjusted after the performance period. This is the most dangerous situation - it destroys the very essence of the KPI system. No one will work hard to meet a plan if they know that it will simply be changed to reflect the fact that it has been met.
The most important mistake is not to link KPIs to the company's goals. If you have not set at least annual goals and formulated a strategy, then the KPI system loses all meaning.
KPIs are a tool to implement the strategy. For example, as an owner you may want to increase the company's market share. But at the same time, all your KPIs are aimed at increasing net profit. Naturally, managers will work to get their bonuses. You should not be surprised if the company's market share is not growing and new territories are not being developed. Managers get bonuses for increasing profits, not for increasing market share.
Another common mistake is to implement KPIs without modelling. Careful consideration should be given to the implications of setting KPIs for managers. Performance criteria need to be balanced. Otherwise, it is very likely that there will be a bias in favour of one economic indicator or another, which can lead to problems.
If your company has difficulties in implementing KPIs, please contact BinomCraft. We will share our experience in building the right motivation in the team and help you to create an individual plan for your company.