The Tyranny of KPIs

KPI’s – Key Performance Indicators – are just that. Indicators. They measure whether your business is operating in the right areas, the health of your business if you like. If one of them is out, then perhaps you are doing something that should be investigated. But we now run the industry as if nothing else matters. Look at it another way. A friend of mine runs a hotel in the country. They recruited a new Chef, who came with glowing references from a big, city hotel. This Chef was well known because not only did he know his onions, etc, he produced such good margins on food. Around 70%. And he guaranteed he could do that in the country. So prices went up slightly, and suppliers were squeezed a bit, and food was bought in the right quantities to get the best discounts. But demand fell slightly, only 5-10%, because of the higher prices. And suddenly wastage went up – because they had to throw more away – and margins began to fall. So up went prices and quickly they got into a spiral that nearly killed their restaurant business. Because 70% wasn’t possible – in fact competitors were closer to 55%. And once that had been recognised, the business changed. It took a while to recover, but he was a good Chef and they could start to price food realistically. They were not bound by some arbitrary criteria that was only meant to measure how well they were doing their job, other things equal, rather than being set as a goal itself. But I don’t see that in our industry. I see managers who are ruled by their KPI’s, who are beaten about the head with this or that ratio, whether it is gross margin on labour, or debtor days, or number of test-drives per coffee cup in the canteen. Because it isn’t real management, it is just management by numbers. I used to paint by numbers, but the results were never as good as my father's, who learned to do it properly.