Key Performance Indicators (KPIs) are a common way for organizations to track performance. KPIs can be used to track sales goals, team goals, and business goals. These important metrics can help companies know if they’re headed in the right direction, but there are disadvantages of KPIs, too.
Accuracy demands time
KPIs don’t always give you actionable information in the short-term. The impact of rolling out a new initiative, program, or sales process can’t be seen right away. Time is needed to determine the efficacy of efforts and processes, and some KPIs need time to simmer. It’s important not to take action on good or bad data too quickly.
Tracking too many things can lead to an overwhelming amount of information. Companies may find it hard to determine which information is important and which should be disregarded. From time to time KPIs might also lead to contradictory information or the need for deep analysis to determine the truth in the numbers. KPIs are best used to track a few of the organization’s most important goals instead of measuring everything.
Lack of standardization
KPIs provide internal measurements for companies against its own goals, like evaluating team performance, but may not give clear guidance on how the organization is performing compared to external competitors. Companies measure different things for different reasons, so KPIs do not provide a uniform way to compare itself against others in the same field.
Misses the small wins
KPIs can often be binary. Organizations see the numbers and determine whether they hit their goal or not. A disadvantage of KPIs is that companies might miss the progress markers that happen on the way to a goal. Instead of seeing the important changes they’ve made to building a better system, KPIs measure a company’s success or failure against a very specific metric that may or may not always show a company is heading in the right direction.
Relies on action steps
Tracking performance is important but KPIs don’t have value without the help of people who act on the data received. A disadvantage of KPI is that it relies on follow-up. Deciding if procedures need to be adjusted, if the company is measuring the right thing, or whether or not a process is working relies on evaluation and analysis of the metrics. Without it, KPIs are ineffective.
A company might hit the mark with their KPIs but be missing the mark in their interactions with people. Relationships are critical to the success of any business. Organizational strength is built on how well people are nurtured inside and outside of the company. One of the significant disadvantages of KPIs is that they can’t measure the loyalty of these relationships or the strength of its corporate culture, which is vital to the health of an organization.
While the advantages of KPIs are notable, the disadvantages of KPIs can’t be overlooked. Using KPIs well can improve the bottom line of an organization, but recognizing the limitations is equally important.