10 KPI Targets That Kill Performance and How to Avoid Them
Performance objectives are meant to drive sustainable growth, but what if they’re silently sabotaging your success? The big challenge with key performance indicators and targets issues is that they are often silent and invisible. Let's drill down into the common traps businesses fall into when setting KPI targets and introduce a method for how to set KPI targets that avoid them.
Why We Need to Pay Attention to Performance Goal Problems
From the moment we can first walk and talk, we are motivated, controlled, and rewarded using a combination of targets and incentives. Which parent hasn't used a sticker chart in a desperate attempt to get the kids to cooperate with them?
Targets and incentives are so deeply embedded in modern society that many of us don't even notice they are core to almost every aspect of our lives. That would be fine if our indicator targets and performance incentives worked properly, but there's plenty of evidence that they often don't. Every time you open a news website, you can find stories about performance goals gone wrong. Here are a few examples:
- Ex-Audi boss stands trial over 'dieselgate' scandal in Germany – The fallout from Volkswagen Audi's manipulation of EPA emissions tests.
- Lloyds profits nearly wiped out by £1.8bn PPI hit – A financial mis-selling scandal driven by aggressive sales targets for highly profitable 'payment protection insurance' products.
- How some funds hide poor performance that can derail your retirement – A lack of reporting rules and intense commercial targets drive jaw-dropping liberties in fund performance reporting.
Understanding KPI Targets: A Quick Refresher
KPIs and Objectives
Blurring the concepts of key performance indicators and targets is a surefire way of creating issues in your organisation that can result in inefficient operations and unhappy staff. Just have a quick read of this real-world example of mine in Team Efficiency and Cognitive Dissonance in the Workplace to know exactly what I mean.
So, it's important for us to understand that there is a distinct difference between measures and objectives and what that difference is.
Performance Goal vs KPI: The Distinction
When we compare KPIs and objectives (a.k.a. targets or goals), we start to make a value judgment about whether we are performing well or poorly.
For example, if my bathroom scales tell me I weigh 80 kg, my reaction is shaped by my personal goal. Weighing 80 kg when my goal is 85 kg might be good news, less so if my goal is 60 kg.
The goal vs KPI distinction: the target (or goal) provides the context for reviewing our performance as reported by our KPI values. The KPI is the measurement of where the important metric currently stands while the goal is the measurement we are striving towards.
When we have poorly aligned KPIs and objectives, we often end up with serious organisational issues.
Your Performance Goal Problems Might Be Killing Your Organisation. Here's Why...
There’s a high chance that dysfunctional performance goals and incentives are seriously impairing the performance of your organisation. The big challenge with key performance indicator objective problems is that they are often silent and invisible. However, there are a few symptoms that should make you want to dig deeper:
- High team attrition
- Lots of management time spent on performance target disputes
- Disappointing organisational performance
- Missed targets and goals
- Team apathy and cynicism
- Rule-breaking, use of loopholes, and even lawbreaking
If your business is experiencing any number of these symptoms, consider it the alarm bells that tell you you may have ineffective performance goals and need to re-evaluate how you're setting KPI targets.
Where These Problems Come From
The first step in curing performance goal problems is to diagnose the condition. The good news is that many of the difficulties we see with KPIs and objectives come up repeatedly across many types of organisations. We can learn from the failures of others.
I wanted to do exactly that which is why I embarked on a massive research journey to investigate the real-world challenges with targets and incentives. I reverse-engineered dozens of high-profile case studies of KPI target design failure which I analyse in-depth in my book, GAMED: Why targets and incentives fail, and how to fix them.
The performance goal problems listed below are the lessons taken from this investigation.
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The 10 Most Common Performance Goal Problems, with Examples
1. 'All or nothing' KPI Targets
Description: A single-tier target where you either achieve the goal or you don’t.
Why this is a problem: A target will only act as a motivator if an individual feels they are close enough for it to be a real prospect. In any organisation, there will always be a spread of performers - some superstars, some laggards, and a large proportion of middle performers. With an 'all or nothing' target, a large portion of the population (the middle performers and laggards) may have no prospect of winning. Conversely, those close to winning (the superstars) may become overly motivated, increasing the risk of rule-bending or -breaking.
Example: Research by Michael Ahearne with a US financial services firm showed that having multiple levels of targets significantly improved the performance of 'core (middle) performers' within an organisation, with core performers showing a significant uplift from the use of three-target tiers compared with one or two tiers.
2. Incomplete Performance Goal Rule Definition
Description: The rules for a target do not fully cover all situations.
Why this is a problem: Incomplete rules allows for the gaming of targets, leading to success in the metrics without delivering the intended positive outcomes.
Example: During the Covid-19 pandemic, the UK government promised '100,000 tests per day'. To hit this goal, they changed the calculation method to count the number of test kits dispatched rather than used. This was followed by reports that requests for test kits were supplied with triple the requested quanity, which moved the government toward the 100k target without delivering meaningful real-world benefits.
3. Objectives Design Input Bias
Description: Certain inputs are excluded in the calculation of the metrics by design to improve reported results.
Why this is a problem: The measures used to assess whether the objective has been hit will be misleading, producing a situation where an objective may be achieved and an incentive given when the real-world performance doesn't justify it.
Example: In the UK, some schools prevent 'A-level' students from sitting public exams if they are expected to perform poorly or fail. This design input bias allows schools to protect or maximise their average grade performance.
4. Excessively High Objective Bar
Description: A target is set at an unrealistically high level.
Why this is a problem: Unrealistic objectives can lead to rapid disengagement from target recipients or to rule- and/or law-breaking.
Example: When a leading UK supermarket, Tesco, set aggressive 2014 profit goals, a whistle-blower described how the senior management team viewed those goals as 'insurmountable'. This perception may have led the company to admit deliberately overestimating annual profits by £250 million.
5. Intentionally Low Objective Bar
Description: The threshold is set at an unrealistically low level.
Why this is a problem: A deliberately low target threshold can lead to reduced real-world performance, as the target is 'too easy' and does not require high performance to meet or exceed it.
Example: 'Exam grade inflation,' where the proportion of students achieving top grades increases over time, is thought to be driven by competitive pressures on examination boards. Easier curricula and examinations attract more schools, creating an incentive to lower the bar when it comes to exam difficulty.
6. Weak/No Link Between Target and Intended Positive Outcome
Description: There is no obvious connection between the KPI target and the intended outcome.
Why this is a problem: When there is no clear link between the target and intended positive outcomes, it can quickly lead to cynicism, frustration, and disengagement.
Example: In the UK ambulance service, for over 40 years an 'A8' target was used for the most serious calls. The objective was that 75% of 'life-threatening' calls be attended within 8 minutes. There was no medical basis for the 8-minute objective, but plenty of pressure to achieve it on a regular basis. This led to high levels of cynicism and disillusionment among those tasked with hitting the target.
7. Arbitrary Goal Selection
Description: There is no obvious connection between the performance goal value and the intended outcome.
Why this is a problem: Arbitrary goal selection can lead to cynicism, frustration, and disengagement.
Example: At the core of the Wells Fargo banking scandal was the 'Going for Gr-eight' objective. The goal was to cross-sell eight products to every customer. When the architect of this target, CEO Dick Kovacevich, was asked how he came up with the target of cross-selling eight products, his reply was 'It rhymes with GREAT!'
8. Individual KPI Target and Organisational Success Not Aligned
Description: The targets set for an individual will not drive outcomes beneficial to the organisation.
Why this is a problem: Performance goals that only benefit the recipient fail to move the organisation toward its objectives. In the worst cases, the cost of rewards offered to individuals, combined with a lack of tangible benefit, can fatally damage an organisation.
Example: Incentivising computer programmers based on maximising lines of code written can lead to inefficient and difficult-to-maintain computer code. The coder can hit the goal, but the resulting software may not deliver the best outcome for the organisation using it.
9. Lack of Pace-setting Performance Goals
Description: The interval between performance goal reviews is too long, leading to a loss of motivation.
Why this is a problem: Research shows that weaker performers see an increase in performance from more frequent target-incentive reviews. By not using pace-setting goals, we sacrifice potential benefits.
Example: Elite long-distance runners have long known that it’s no good waiting until the end of a race to find out if they were running at the best pace. Lap times, pace calculators, and constant feedback are essential to achieving their best performance. The same applies to any human endeavor—prompt, accurate, and frequent feedback on performance consistently delivers higher levels of achievement.
10. Inappropriate Performance Goal Timescale
Description: The target review frequency is not appropriate to influence and control the thing being measured.
Why this is a problem: A long review interval (e.g., annual review) for a time-sensitive activity (such as customer interaction skills) reduces the benefit from the target-incentive approach, as it breaks the feedback-response loop.
Example: In the UK, state schools receive a government quality assessment called an 'Ofsted rating'. These assessments can significantly impact parents' choice of schools. The Ofsted assessment frequency is approximately 4 years. Much can change in 4 years, including leadership and teaching staff. Choosing a school based on a 4-year-old rating could be compared to driving your car based on what you were seeing 10 minutes ago.
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Setting KPI Targets
As we've just explored, KPIs and objectives need to be handled with care. Making sure business goals are achievable requires two things: 1) the right KPIs that ensure the metrics being measured actually relate to the success of the organisation's strategy, and 2) the business to set targets that avoid all 10 of the common performance goal problems we have just covered.
How to Choose the Right KPIs
I have spent over 18 years perfecting how to choose the right KPIs in any organisation. The best tool to use to ensure your organisation's strategic goals are reflected in your measurable actions is a KPI Tree. Here's exactly how to build killer KPI Trees in 7 steps.
How to Set KPI Targets
I dedicated significant time to reverse-engineering dozens of high-profile case studies of KPI target design failure, which I analyse in-depth in my book, GAMED: Why targets and incentives fail, and how to fix them.
This process helped me uncover that similar target and incentive issues appear time and time again—there's a pattern. Years of professional problem-solving has taught me that where there is a 'pattern of failure', you can normally use a structured, repeatable process to fix those failures.
Setting KPI Targets with ROKET-DS
I developed the Results-Orientated KPI Effective Target Design System—ROKET-DS for short. This is a structured, repeatable 10-step process for setting metric targets that won't succumb to our common traps.
While the ROKET-DS can be used on its own to produce great performance goals, the thinking behind it is actually also in complete alignment with OKRs. Whether you'd like to create performance goals on their own or as part of your OKRs, here's how to set effective KPI targets in 10 steps.
And when you're ready to expand this approach to your employee incentives, head over to our Ultimate Guide to Incentive Plan Design.
Resources to Help
If you need additional hands-on and company-specific support for your targets and incentives, there are a few options available to you right here at Made to Measure KPIs:
- You could read my book, GAMED: Why targets and incentives fail, and how to fix them.
- You could complete my on-demand online course covering all the material of the GAMED book and more. Focusing purely on target and incentive design, this course contains video tutorials as well as downloadable notes and practice to make the lessons of the book tangible.
- You could be part of the next cohort for my KPI Black Belt programme. This is a comprehensive programme that teaches students everything they need to know about performance management for any organisation. It includes dedicated modules on target and incentive design, building KPI Trees, dashboard and report design, and many others. This is a fantastic professional development option for your entire team, getting everyone on the same page.
If you'd like to chat to me directly about how I can help your business, book a free introductory call with me today. Hopefully with these resources, we can get organisations making headlines for all the right reasons.
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