The Pitfalls of Overemphasizing KPIs in Business Strategy

Contributions from various entrepreneurs shape this article. Administrators often rely heavily on key performance indicators (KPIs), which are metrics that supposedly allow them to assess the status of different business operations. While KPIs can be beneficial as part of a strategy that emphasizes data analytics and data-driven decision-making, there’s a significant issue with overvaluing KPIs. Many companies today are falling into this trap.

The Ideal Approach to KPIs

KPIs can be advantageous and influential in directing an organization’s course when used correctly. They are objective, easy to understand, and measured with a specific purpose. These are dependable data points that can enhance decision-making. However, even in this ideal situation, it’s crucial for organizational leaders to use these metrics appropriately. A single metric should not drive your decision-making, and metrics alone should not guide your future company visions.

KPIs can be compared to different types of food in a balanced diet or various assets in your overall investment portfolio, each with its strengths and weaknesses. They are incredibly useful but only constitute a part of your strength in organizational decision-making.

The KPI Dilemma We’ve Created

Why have we strayed from this vision? There are several reasons worth considering. I believe it’s mostly about disproportionate evaluation. We’ve started to view KPIs as more potent and informative than they truly are. This doesn’t mean they’re not powerful or informative; it’s just that we’ve overestimated and misinterpreted them. Let’s examine some specific ways this happens.

Vanity Metrics

Vanity metrics are a prime example of how KPIs can be misused and misunderstood. These are metrics that make you feel good about a specific result or strategy, without truly providing information on operational efficiency. For instance, follower count is a commonly tracked vanity metric in social media marketing. While it does hold some value and it’s certainly pleasing to see your follower count increase, it has little to do with more measurably impactful things like follower engagement, brand awareness, conversions, or revenue generated.

Ambiguous Meanings

Sometimes KPIs carry ambiguous meanings. For example, in the customer service and customer experience world, a commonly used KPI is the net promoter score (NPS). Hypothetically, NPS helps you estimate consumer sentiment, and you measure it by asking people how likely they are to recommend your business to others. But sometimes, these answers have little to do with consumer sentiment. It’s nice to know that some of your customers would hypothetically recommend your business to others, but why would they do this? What’s driving them? And how likely are they to follow through on this?

Misleading Data

You can use data to support just about any argument you want. For example, let’s say we’re using data to compare the effectiveness of different marketing strategies. There is one strategy that’s very challenging to pull off, but if you use it successfully, it’s incredibly powerful. If you want to make the argument that you should use this strategy, you can cherry-pick the best case studies and prove how powerful it can be. If you want to make the argument that you should not use this strategy, you can take a measurement of the average results and show that typically, this strategy isn’t worth using.

The Almighty Incremental Change

Embedded growth obligations (EGOs) drive countless companies forward, forcing them to grow, grow, and grow. And on a smaller scale, organizations are sometimes held back by a focus on incremental change, shackled by the KPIs that guide them.

Lack of Actionability

One final problem to note about KPIs is that they sometimes lack actionability, or a “so what” factor. It’s great that your organization is seeing higher CSAT, but what does that mean for the organization, how should it change your decision-making, and where do you go from here?

None of this is meant to suggest that you should stop tracking KPIs or using them as part of your approach to organizational decision-making. But we need to get real about our obsessiveness and misuse of these sometimes-trivial and sometimes misleading data points.