KPIs, t argets, and incentives. What they are and why they are different
Before we get into the detail of target and incentive design, we need to be clear on what the terms KPI, target, and incentive mean. They are close cousins, but each has a distinct definition.
What is a KPI?
A Key Performance Indicator (KPI) is a measure of how we are doing at something that we care about.
What is an incentive?
If KPIs provide objective numerical quantification, and targets provide the context then incentives are intended to provide behavioral motivation.
An incentive can be either positive (I buy myself a new smartwatch if I hit 80 kg), negative (I will put a padlock on the fridge if I hit 85 kg), or some combination of the two.
What is a target?
It is when we compare KPIs with targets that we start to make a value judgment about whether we are performing well or poorly.
If my bathroom scales tell me I weigh 80 kg, my reaction would be shaped by my personal target. Weighing 80 kg when my target is 85 kg might be good news, but less so if my target is 60 kg.
The target provides the context for reviewing our performance, as reported by our KPI values.
OKRs - Objective Key Results
If you haven’t come across them already OKR is a goal-setting approach pioneered in Intel, based on Peter Drucker’s work on Management by Objectives in the 1950s, which is now used widely across the corporate world. OKR stands for ‘Objective Key Results.
The Objective element describes a substantial, often long-term outcome we want to achieve.
How ROKET-DS™ extends OKR methodology
ROKET-DS™ has been engineered to support the design of both one-off objectives (missions) and everyday ‘business as usual targets and incentives. OKRs are unashamedly project-based. They have a finite life, existing only until the outcome is delivered, then they need to be replaced or reworked. Individual OKRs are not designed or intended for long-term ‘business as usual management.
The OKR approach does not cover incentive design. ROKET-DS™ is designed to integrate the target and incentive design process in one seamless method.
How do we use the ROKET-DS™ Diagnostic?
The ROKET-DS™ Diagnostic can be used in two situations. Firstly….
1. Diagnosing existing target and incentive issues
It’s quite common to have a target incentive system that is not performing as expected, which we need to ‘fix’. In this situation, an accurate diagnosis of all of the issues is essential before we start the repair process. The ROKET-DS™ Diagnostic will help us tease out some of the less obvious problems by using the highly visible issues as a starting point.
Diagnosing existing target and incentive issues is Step 0 of the ROKET-DS™ method, which we will cover in Part 2 of this book. The ROKET-DS™ Diagnostic is the tool we use to do this.
2. Field testing new target and incentive designs for potential problems
One of the major gaps in the SMART method is the lack of ‘real-world’ testing. In Step 7 of our process, we will cover a testing process called ‘Black-hat testing’, where we look for potential problems with our new designs before they are deployed. The ROKET-DS™ Diagnostic is a critical part of that ‘black hat testing‘.
Next, we group them into four families, to make things a bit more orderly. Here are the four groupings…
A. Target Design Failure: Issues with the way in which the targets are designed, indicated with the prefix TF.
B. Incentive Design Failure: Problems with the rewards, incentives, or punishments on offer for achieving the target (or not), indicated with the prefix IF.
C. Management Dysfunction: Management behaviours that make things worse, shown with the prefix MF.
D. Behavioural dysfunction: Weird behaviours that often occur as a result of the other three problem families. We use the prefix DB to flag these.
Looking at the failure modes we have identified, it becomes clear that certain issues like traveling in groups.
For example ‘Winner takes all’ incentives can drive ‘Law breaking’, ‘Rule bending or breaking, ‘Using loopholes’, and other kinds of behavioral dysfunction.
In any busy, complex organization there are many things going on simultaneously. Some issues will be highly visible, others may be buried and remain undetected. As there are multiple, often intertwined, relationships between these issues, a diagram can really help.
To help make sense of these complex relationships we have developed a schematic called the ROKET-DS™ diagnostic.
To learn more stay tuned to the Web Series - KPIs in Design by Ricardo Faria here on Design in Focus. Visit his experience portal to view and listen to all of his sessions.