A cautionary tale
In 2011, Wells Fargo felt the pressure; revenue had fallen nine consecutive quarters in a row, fuelled by intense competition and the lingering fallout from the financial crisis.
Although they had been left comparatively unscathed after the financial crisis, the bank introduced a seemingly straightforward performance initiative driven by Key Performance Indicators (KPIs).
The concept was simple: reward employees for opening new deposit and credit card accounts for existing customers.
However, this seemingly innocuous initiative—dubbed the ‘Cross-Selling strategy’ —was focused purely on numerical targets and driven by relentless pressure from supervisors to make quotas.
Cue the carnage.
This fostered a culture of cutthroat cross-selling. Employees used aggressive pressure tactics and fraud to open over 1.5 million deposit accounts and 500,000 credit card accounts to the detriment of their customers.
Employees who would never normally engage in such practices found themselves working under relentless management pressure to make quotas.
The LA Times uncovered the practice in 2013, and since then, Wells Fargo has faced multiple regulatory fines and reprimands. By 2018 this was estimated at 3 billion – and as recently as 2023, they faced fresh allegations related to their cross-selling initiatives.
This cautionary tale underscores the importance of balancing quantitative KPIs with qualitative considerations.
Understanding what qualitative KPIs are meant to do.
Qualitative Key Performance Indicators (KPIs) provide valuable insights beyond numerical metrics. Unlike quantitative KPIs, which are measured solely by numbers, qualitative indicators focus on characteristics, subjective interpretations, and descriptive aspects of a process or decision.
Typically, these KPIs will track performance nuances such as Employee Satisfaction, Brand Perception, and Customer Feedback.
They are essential as they offer a holistic view of the organization’s health, drive culture development, and, most importantly, guide customer relationships.
What is the difference between quantitative and qualitative KPIs
There is a succinct distinction between qualitative and quantitative KPIs; think of it like a creative and a scientist:
Qualitative KPIs: These KPIs focus on descriptive qualities and are subjective. Think of customer satisfaction levels, employee engagement, and brand perceptions. They provide insights into experiences and perceptions.
Quantitative KPIs: These KPIs measure data numerically. Consider metrics like revenue, inventory turnover, and costs—essentially factual insights into efficiency and performance.
The benefits of Qualitative KPIs.
Suppose a hotel chain aims to improve guest satisfaction. Their quantitative KPIs would typically include occupancy rates and revenue per available room.
However, they also track online reviews and ratings (a qualitative KPI) to gain deeper insights. If reviews consistently mention cleanliness issues, the hotel management can take targeted actions to enhance housekeeping services.
This combination of quantitative and qualitative KPIs ensures a well-rounded approach to performance assessment and continuous improvement.
But, qualitative KPIs can offer more than just contextual understanding.
Qualitative KPIs complement quantitative metrics by offering contextual understanding. While quantitative KPIs focus on measurable numbers, qualitative indicators provide narrative insights
They help answer questions like “why” and “how.”
For instance, consider a software development team. While tracking the number of completed features (a quantitative KPI), they should also assess developer satisfaction (a qualitative KPI). High satisfaction indicates a motivated team, leading to better code quality and faster delivery.
Strategic Decision Making:
Qualitative KPIs guide strategic choices. They highlight areas for improvement or potential risks.
Imagine a retail chain expanding to new markets. Beyond sales figures (quantitative), they should gauge customer feedback (qualitative). Negative feedback may reveal product localization or customer service issues, impacting expansion plans.
Customer Experience Enhancement:
Qualitative KPIs focus on customer perceptions. They help businesses understand how their offerings resonate with customers.
Take an e-commerce platform. User satisfaction while tracking conversion rates (quantitative). A high satisfaction score indicates a seamless shopping experience, leading to repeat business.
Employee Engagement and Productivity:
Qualitative KPIs related to employee morale, teamwork, and work environment impact overall productivity.
Consider a call centre. Alongside average handling time (quantitative), they should measure employee motivation. Happy agents (allegedly) provide better customer service, reducing call resolution time.
Qualitative KPIs help identify potential risks early. They capture non-numeric factors that may impact performance.
In the financial sector, while tracking profit margins (quantitative), banks should also assess compliance adherence. A low compliance score could lead to legal issues and financial losses. Nudge, nudge, wink, wink, Wells Fargo.
The White Elephant in the Room: Surrogation and the Pitfalls of Qualitative KPIs
In the bustling world of Key Performance Indicators (KPIs), we often find ourselves chasing metrics like a dog chasing its tail. Among these, qualitative KPIs stand out as both intriguing and elusive. They offer a glimpse into the human side of business—customer satisfaction, employee morale, brand perception—but they also harbour a hidden danger: surrogation.
What Is Surrogation?
Surrogation occurs when we become so fixated on improving a specific qualitative metric that we lose sight of the bigger picture. Imagine a captain steering a ship by focusing solely on the color of the waves rather than the distant lighthouse. The waves may be captivating, but they won’t guide the vessel safely to shore.
The Allure of Qualitative Metrics
Qualitative KPIs provide context, nuance, and depth. They tell stories beyond the raw numbers. When we see a spike in customer satisfaction scores, we celebrate. When employees express higher engagement levels, we pat ourselves on the back. But here lies the trap: we mistake the surrogate (the metric) for the real thing (the underlying objective).
The Perils of Surrogation
- Tunnel Vision: We zoom in on the metric, ignoring other critical aspects. A high Net Promoter Score (NPS) doesn’t guarantee customer loyalty if product quality suffers.
- Distorted PrioritiesSurrogation skews our priorities. We optimize for the metric, neglecting holistic improvements. Focusing on reducing call center wait times might lead to rushed customer interactions.
- Unintended Consequences: Fixating on employee satisfaction scores might lead to inflated grades, masking deeper issues like burnout or lack of growth opportunities.
To avoid the surrogation trap, we must strike a balance, but how do we create KPIs that are connected in such a way as to balance the overall perspective? – Read on.
Practical Steps to Balance Qualitative and Quantitative KPIs
Balancing qualitative and quantitative Key Performance Indicators (KPIs) is crucial for comprehensively understanding your business. Here are a few quick steps to help achieve that balance:
Choose Relevant KPIs:
Identify the KPIs that align with your business goals and objectives. Quantitative KPIs provide data-driven insights, while qualitative KPIs offer context and depth.
- Combine Both Perspectives:Use quantitative KPIs to track performance objectively. Augment with qualitative KPIs to capture subjective aspects, like customer feedback or employee engagement.
- Collect Data Effectively:For quantitative KPIs, automate data collection using tools or software. Qualitative KPIs may involve surveys, interviews, or observations.
- Analyze and Interpret:Regularly review KPIs to spot trends and anomalies. Consider both quantitative and qualitative insights to make informed decisions.
- Strive for Balance:Avoid favouring one type over the other. Balance ensures a holistic view of your business performance.
In the ever-shifting world of Key Performance Indicators (KPIs), we encounter quantitative and qualitative metrics.
Quantitative metrics—our numerical compass—guide us toward profitability.
Qualitative metrics—like customer satisfaction or employee engagement—reveal the human side of business. However, we must avoid the trap of surrogation, where we focus too much on a single metric and lose sight of the bigger picture.
Balancing both types of KPIs enriches our understanding. Quantitative data informs strategy, while qualitative insights provide context. As you navigate this delicate balance, remember the ultimate goal—the lighthouse guiding your business voyage.
May your KPIs be both practical and insightful, leading you to success.
Stuart Kinsey writes on Key Performance Indicators, Dashboards, Marketing, and Business Strategy. He is a co-founder of SimpleKPI and has worked in creative and analytical services for over 25 years. He believes embracing KPIs and visualizing performance is essential for any organization to strive and grow.