Today, we will look at two useful points for business strategy development. They both relate to Key Performance Indicators; firstly in relation to the ‘ideal’ number that any organisation should set, and secondly, in relation to leadership. So let’s dive right in.
1. Seven Plus or Minus Two
According to cognitive psychologist George A. Miller of Harvard University’s Department of Psychology, seven is a magic number. And the power of this ‘magic number’ is well worth considering when it comes to your business strategy.
What makes no.7 so special?
The number seven isn’t just associated with good luck in a card game – it’s also pivotal when it comes to our capacity as humans to process information – and the foundational paper, produced by Professor Miller, is one of psychology’s most cited papers in history. Also called ‘Miller’s Law’ it explains that people can only hold seven plus or minus two items, in their short-term memory at any one time and that the magic number of seven itself is the best for memory recall.
Why the number of KPIs matters
We can apply this to our key performance indicators. Often, businesses make the mistake of choosing too many. This is understandable because business leaders will naturally be enthusiastic about creating the best possible business and reaching as many goals as possible – in the least amount of time.
But too many KPIs will simply demotivate employees, take away the right level of focus and result in the law of diminishing returns, where the more KPIs we have, the less likely we are to achieve any of them at all.
The right approach to choosing a KPI set is one of moderation – not too many and not too few. You need enough to actually measure your strategic goals, but not so many that people become demotivated and confused, and simply switch off. The rule of seven can help you here, and guide those eventual choices of KPI. It can also help you to manage expectations within your own leadership team and to quell any tendency to add a ‘couple of last-minute extras’ to your KPI set. You might even want to review Miller’s Law before you start a KPI setting workshop or adding your KPIs to a KPI Software package. It’s so powerful that it’s used widely across a variety of applications, from human psychology and education to intelligent design.
Now with our numbers under control, let’s turn our attention to the way that we select our KPIs and communicate these to the business. And, crucially, why this task must fall within the remit of the leadership team.
2. Why leaders need to lead with KPIs
Sometimes businesses make the mistake of trying to make the KPI setting process a collaborative one. Because they want to engage with their employees and create that vital sense of buy-in and involvement, they ask people across the business to add their own thoughts, ideas and priorities to the vital task of setting strategic KPIs for the year ahead.
But in doing so, the approach simply leads to confusion and frustration. The business ends up with huge amounts of disparate and unqualified data in the form of myriad personal views, opinions and thoughts – that no one can act on. This takes time to process and ultimately ends up in frustration for everyone because the business’s leaders simply cannot set the organisational course through collaborative action. Many employees will feel frustrated that they contributed and were seemingly ignored. And in the meantime, huge chunks of time are wasted as the leadership team works out how to move forwards and communicate the outcome to the organisation.
The fact is, at this critical point of setting the business strategy leaders need to lead and employees need to follow.
Collaboration is fine, but…
Jim and Kay Stice of Stice Learning (https://sticelearning.com/) use a great anecdote that we use regularly with our clients to illustrate this point:
“A pilot and a co-pilot were in a jumbo jet taking off from London on the way to New York. The co-pilot turned to the pilot and said, “I’m fed up of looking at all these instruments. if we could choose just one, which one would it be. The pilot said, “well maybe the airspeed, or how about the altimeter, hold on we need to know how much fuel we have, perhaps we should just use the compass?”. The co-pilot stopped him and said, “I know, let’s ask the passengers to vote, that way we will be sure to get a good customer satisfaction rating.” Now if you were a passenger and the pilot asked you that question, what would you do – I’m pretty I would get up, collect my bag and leave the plane in an orderly fashion!”
There are two points to take from this:
- All of the instruments in this anecdote are necessary, in the same way, that all business measures are necessary. However! At any given time, we only need to focus on the ones that matter. Our brains will let us focus on seven measures, plus or minus two.
- Asking the passengers – or, rather, our workforce – what we should be focusing on, is not the way forwards. The business leaders are in the right place to look at the data and make the right decision. Of course, it’s essential to involve your employees in the ongoing strategic process to get their ideas, input, energy and feedback, but the leaders must set a clear and expert course for the entire organisation to follow.
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Seven Plus or Minus Two