Non-working KPIs in IT: what they can cause and how to choose the right ones
In this article, we will learn why KPIs are important to tech companies. How to see which KPI work and which don’t. What problems they can cause, and how to develop the right performance metrics for your company.
There is a postulate in management: it is impossible to successfully manage what cannot be measured. KPIs (Key Performance Indicators) are the very tools that allow you to assess, monitor and improve the way you or others work in order to achieve a goal or optimize process. Moreover, KPIs can be applied both to individual employees and teams, and to the business as a whole. IT companies are not an exception.
Why KPIs are important for IT companies?
IT companies are some of the most dynamic, fastest growing, and adaptive businesses in the world. Requirements, technologies, approaches to implementation in this area are changing at great speed. And in order to survive in an era of constant change, it is necessary to find the correct approach to management and a way to adapt to change. You cannot hide from them. You competitors will overtake you, and customers will go to other suppliers. Therefore, the speed with which you adapt and manage (i.e. measurable) change are key factors in the survival of companies.
Some startups and small companies, not only in the IT, work and develop without metrics and performance indicators. But is this the right approach?
When the project has real users, the company begins to grow. Its owners or investors expect not just survival, but predictable business growth. As it develops, there are questions that owners want to know the answers to. Where is the company located? What will help the business to grow faster? Where do we lose money? How to improve the quality of products or services, and, consequently, to conquer a larger piece of the market?
The moment when you realize the need for KPIs is a serious step towards the development of the company. If we take a step down and look at a single team, we will see a similar story. Two or three like-minded people writing code at night — it’s a hobby. A team of 5–10 or even 50 people working according to a clear schedule, for one project and with same processes, taking into account business priorities and limitations, needs active implementation and constant use of metrics (KPIs).
How to understand when selected KPIs do not work?
An example from the early 1990s. Back then, a number of global companies came up with and began to use a metric for assessing the developer’s work speed. According to it, it was supposed to pay for the work of such specialists according to the number of lines of code written per day, week, month.
The idea behind this metric lies on the surface. The more code a programmer writes, the more functionality the project gets, which means the value of the product increases. In reality, it was like this. There was a lot of code written, it was duplicated, multiplied. Because no one was interested (from the established KPIs’ point of view) to refactor the code, fix errors and create common components.
Another example from 2000s. The management of a respected IT company introduced a new rewarding system for developers. It was something like this: a corrected defect on the weekend was rewarded twice as much as on a working day. The purpose of this metric is clear. To encourage employees to make additional efforts to improve the product quality on weekend.
In the first couple of weeks, it worked as it was intended. However, several smart employees “hacked” the system. They prepared updates during the workdays and uploaded them in the repository on Saturday. As a result, resourceful guys raised their income without increasing their contributions to the project.
Then there was a chain reaction. During the working week, most of the team did not fix defects, but waited for the weekend. They came to the office for 15 minutes and uploaded all the accumulated updates. After three months, the company had to abandon this metric and recognize it as ineffective in this form.
Simple KPIs in IT projects will simply not work at best, and at worst they will become disastrous. Although there are still teams and companies trying to measure the success of employees and project with similar not considered metrics.
There could be several problems when implementing KPIs:
- The selected or created KPIs do not correspond to the strategic goals of the company. The metric solves some local problem that lies outside the business development goal or even interferes with its development
- The targets or limits are defined incorrectly. If they are too low and easily achievable, it will lead to the demotivation and lack of development of employees. And absolutely unachievable — to the denial of goals and employees’ nihilism, who will only pretend that they are working on the assigned tasks.
- Employees do not understand the KPIs logic. The team should understand and share the idea, behind each metric. Otherwise, you will get either ignorance of the goals or incorrect prioritization
- KPIs are redundant. Employees can get overwhelmed by the abundance of goals, metrics, and threshold requirements. The worst thing a manager can think of is assigning conflicting KPIs. When the performance of one KPI negates the work on another criterion, or vice versa.
Therefore, the set of performance indicators should be:
- accepted by all employees
- aimed at improving the efficiency of the process or accelerating the result
As a result, KPIs should become a part of the company’s strategy and in no way contradict it.
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Originally published at https://www.luxoft-training.com.