Key Performance Indicator or KPI’s, have become common in sales and sales performance management, but the question is are they effective and have they delivered on their promise.
A Key Performance Indicator or Performance Indicator is a kind of Measure of Performance. Conventionally they measure things such as number of new orders, cash collection efficiency, and return on investment, return on assets, and more. KPIs show the progress (or absence of it) in realizing an organization’s goals or strategic plans by monitoring activities. In short, these focus on leading indicators that determine the lagging indicators, results.
In sales, KPI’s are specific to sales activities, anything from number of customer visits, number of demos, or any number of conversion ratios based on the organization’s process. While management can use these measures for planning, territory alignment, headcount, resource planning, they most often used to guide performance usually based on activities or specific tasks. There are plenty of good article out there on how to plan, create and use KPI’s in a sales environment; our question here is are they having the desired effect.
I work with many organizations that have KPI’s, yet they fail to deliver quota. The most common reason for this is how well the managers leverage KPI’s both in coaching which leads to sustainable change, and driving improved results.
When we look at the managers, we really need to include management, everybody upstream from the front line manager, ultimately sales KPI’s are everyone’s responsibility not just the front line. Often KPI’s are set by senior executive who feel that they can change by declaring an edict from on high, “thou shalt do….”. For a KPI to be effective it needs to be based and focused on something pertinent when executed, be measurable, and contribute to moving towards “success”, for both the organization and the sales rep.
I have seen to many KPI’s based on the simple notion from an executive who declared “that’s what we used to do at ACME, and it worked.” Like a CRM, having one is not the end goal, it is a means of assisting in getting there. And that’s where the front line manager comes in, they should be using KPI’s as a basis for coaching and ensuring their people develop the skills and discipline required to achieve the KPI.
Too often, KPI’s are used as reporting tools, “beat up the sales person tool”, or CYA tools. Managers need to be taught to use KPI’s as a coaching not management tool. In many cases front line sales managers have not been made aware of the difference between managing and coaching, as a result instead of leveraging and gaining from KPI’s, it becomes another report trudged out in those “we gotta talk” meetings.
The failure by senior management to help the front line managers be more effective coaches, make KPI’s a barrier to success rather than a driver of success. When reps feel measured rather than led, they turn to rationalizing their performance and use KPI’s to do that. I often hear reps say “well what do you want me to do, get sales or complete the KPI’s you gave me?” or “how am I suppose to sell when you want me to do these other things?” In some ways, they have been conditioned by too many flavours or initiatives of the week.
So what starts out as means of committing to success, the organization providing guidance for best practices, a guide for consistent execution and success, often and quickly devolves into a CYA exercise. Where the rep can say “hey you asked for 10 calls, I gave you 10 calls”, everyone checks the item on the list and moves on but not forward.