Key Performance Indicators fire up human ingenuity like nothing else. KPIs that are simple and well-defined help us embrace change. But KPIs can also drive us to find loopholes that meet the letter of the goal while failing to meet the spirit.
This applies to both rat catching and to digital marketing. And no, I am not saying those are equivalent!
The Great Hanoi Rat Massacre of 1902
A famous example of a failed KPI occurred in Hanoi, Vietnam early last century. The French Colonial Governor was frustrated by the huge numbers of rats taking up residence in the modern underground sewer system. Worse yet, the rats were using the system as a superhighway into homes and stoking fears of bubonic plague.
So the Governor approved a bonus-backed KPI for killing rats. Every rat tail brought in would trigger a payment (the bureaucrats likely thought themselves very clever that they avoided dealing with the bodies of the rats).
Unfortunately, city residents began to see more and more rats — and often without tails. After all, why kill the rat if you could just cut off the tail and let it keep breeding?
Even worse, entrepreneurs set up rat breeding farms allowing them to maximize revenue and minimize the amount of work actually catching the rats.
The French eventually terminated the bonus program. With no more payouts, the entrepreneurs simply released all the rats from the farms.
To management, the KPIs would have shown a brilliant success. But the city now had more rats than at the beginning.
(For a richer version of this story, I suggest visiting: www.atlasobscura.com/articles/hanoi-rat-massacre-1902)
The Great Marketing Debacle of 2011
As the head of advertising at a Fortune 100 technology company, I led the transition from traditional media to digital media.
In the first phase, we worked with publishers to promote content offers such as independent analyst white papers on a key technology area. Then we relied upon media partners — together with our agency — to drive registrations and deliver those contacts to our database.
Almost immediately, our analytics showed systemic problems. As one example, we looked at how many days it took for a new contact / registration via a publisher’s site to arrive in our database. The average was almost 30 days… with Brazilian publishers averaging over 100 days (averaging!).
Imagine if you registered for a content offer related to a pilot project you’ve been assigned. And then, 100 days later, a vendor rings you up and wants to pitch their solution. You would be crazy to trust them to support your business in a timely fashion!
In response, we set new KPIs that would drive our media agency to solve these problems asap. And we arranged bonus payments for meeting and exceeding those KPIs.
The Power of KPIs
We issued three interconnected KPIs that we dubbed: “Quantity, Quality, and Speed”.
- Quantity: Publishers must deliver the quantity of contacts that were contracted per quarter or they wouldn’t get paid.
- Quality: Those contacts must be within our defined target audience, region, country and they must not include bad data. Unqualified contacts would be rejected without payment.
- Speed: Contacts must be delivered to the agency, the bad contacts / bad data must be rejected and valid ones uploaded to our CRM system within X days (flexibility was necessary given some niche and international media partners had quite manual processes).
The KPIs were so clear that agency staff around the world — often supporting multiple clients — could immediately rattle off the goals of “QQS”. Their regional and country leaders also quickly learned the demands and focused on delivering to reach the bonus. Brilliant.
The Pain of KPIs
Can you guess where we went wrong?
In advance, we were most worried that “Quantity” would result in a deluge of bad or fake contacts. But the “Quality” data cleansing worked well.
Instead, our mistake blind-sided us. Many of the larger-scale publishers embraced “Quantity” too aggressively… delivering their entire target for the quarter in the first month. We had a tidal wave of contacts arrive and the sales teams couldn’t handle the volume. As a result, the contacts expired before they could be touched. Not brilliant.
In Summary:
Much of the time, the relationship with our media agency was too complex and multifaceted to boil down to simple KPIs. But this scenario was a perfect fit for the bonus model and it absolutely did work.
Don’t be scared of KPIs, but do remember to:
- Keep It Simple: 3 KPIs but 1 goal — moving us to digital engagement.
- Keep It Memorable: The “QQS” mantra was clear and no-nonsense.
- Keep It Honest: Brainstorm how to cheat. And how to stop it.
Good luck!