What are KPIs?
"Key performance indicators (KPI) are a set of quantifiable measures that a company uses to gauge its performance over time" (Investopedia
). They help employees focus on common goals and ensure that those goals are aligned with the those of the organization.
So far, so good. KPIs are important and beneficial for the company and a good guideline for the employees. However, most companies use them as a compensation-and-reward system. They have mid-year or yearly performance reviews whereby each employee is graded based on his or her performance relative to the KPIs. In this case, KPIs are not just indicators, they become goals that need to be achieved. Does this make sense? In some situations, I would say yes. For Scrum Teams? No.
Let's say you work at a car dealership. You have a base salary and earn a percentage of every direct sale you make. This looks like a good model, because it motivates you to be better at what you do so that you can earn more. A good KPI, in this case, can be the number of sold cars. This KPI is in line with the organizational goals and also your goals as a salesperson in that organization. If the KPI is achieved, it is a win-win situation.
KPIs used as a compensation and reward must be in line with both organizational goals and individual goals within the organization.
Now imagine that you are part of a development team within Scrum. During the sprint, you have a sprint goal that you share with the Scrum Team. The whole team is committed to this goal. But you also have KPIs that are not necessarily shared with the other team members. They also might not be aligned with the sprint goals.
When KPIs are misaligned with the sprint goal
What if KPIs are not completely aligned with the sprint goals? We will have few problems:
KPIs can be the individual "secret agenda" for each team member.
- The Scrum Team loses focus. Instead of focusing on only the sprint goal, each team member must focus on his or her own KPIs, because the KPIs affect the member's compensation.
- The Scrum Team is not committed. Measurement affects behavior. Why would it be more important to commit to achieving the sprint goal when your overall performance is measured using KPIs?
- Openness and transparency are lacking. The sprint goal is transparent and created by the Scrum Team. Even if the KPIs are public, it is improbable, even in a small organization, for a person to remember the KPIs of all other employees he might work with, and it is virtually impossible to take all of this information into account when making decisions.
If KPIs are completely aligned with all the sprint goals in every sprint, then why do we need them? Why don't we use the sprint goals to measure performance? Because achieving the sprint goal doesn't tell you anything about the individual — it tells you about the combined effort of the whole Scrum Team to deliver an increment of a working valuable product.
The sole act of measuring the performance of the individual within the Scrum Team will cause the team to function as a group of individuals, whereby each member is concerned with his or her own performance and not the performance of the team as a whole.
The true measure of success in Scrum is a working product increment that is valuable for the customer. In my opinion, using KPIs for rewarding (or punishing) individuals degrades some of the most important Scrum values and will eventually affect the delivery of the product. Top management should try to find a more creative way to design the compensation-and-reward system to encourage teamwork based on Agile values (focus, courage, openness, commitment, and respect).