You already know why the Balanced Scorecard From the article yesterday as a direct assessment tool for employees can become problematic. But that doesn't mean you have to do without measurable evaluation criteria.
On the contrary: With the right understanding of Key performance indicators (KPIs) and a thoughtful approach, you can create a fair and motivating rating system.
The difference between BSC and KPIs – more than just conceptual play
Before we go into detail, let's clarify the important difference between the Balanced Scorecard and KPIs. The Balanced Scorecard is a strategic planning and management system that goes beyond mere financial metrics and provides a more ‘balanced’ view of business performance, while KPIs are metrics specifically defined for a company that are used to measure the achievement of business objectives or concrete changes.
The crucial point: While Key Performance Indicators (KPIs) are metrics used to assess factors critical to a company's success, the Balanced Scorecard is a strategic planning and management system for the company itself. The BSC is the large strategic framework, KPIs are the individual measures.
Yesterday we had already cut OKR, that sounded similar? True, but the main difference is that OKRs (Objectives and Key Results) are an objective framework to define ambitious, forward-looking targets on a rotational basis, while KPIs (Key Performance Indicators) are pure quantitative metrics to measure the progress and performance of existing processes. OKRs set the purpose and direction, and KPIs are the tools to track whether you're successful on your way there.
For employee evaluation, this means: You don't need a complete BSC structure, but specifically selected, employee-relevant KPIs that are fair, influenceable and motivating.
The Anatomy of a Good Employee KPI
An effective KPI for employee evaluation has certain characteristics. KPIs should be strategic and consistent with the company's goal and vision, be measurable and easy to understand, and cascading from the highest level to all departments to the individual employee.
The SMARTER criterion is very helpful for employee evaluation. The SMARTER criterion (no own principle, derived from the SMART approach) should help to evaluate the relevance of a certain key figure for your KPI best practices. Details are e.g. in this article Very nicely explained. Keep in mind that each metric should have a specific goal, be measurable, achievable and relevant to the company, the timeframe must be clearly defined, and the metric should be continuously evaluated.
But that's not all. Additional criteria are added for employee evaluations:
Influenceability: The employee must be able to directly influence the key figure through his actions. A sales representative can influence their number of customer appointments, but not necessarily the overall market development.
Fairness: The KPI must not be distorted by external factors that are outside the employee's sphere of influence. If the website was down for three days, the number of online requests this month is not a fair yardstick.
Balance: A single key figure must never decide on the evaluation of the work alone. You always need several KPIs, if possible created in such a way that they balance each other.
KPI combinations instead of lone fighters
The key to a fair employee evaluation lies in the intelligent combination of different KPI types. Here is a proven system:
Combine quantitative and qualitative KPIs: Quantitative KPIs can be given as a numerical value, but qualitative KPIs cannot. A customer service representative could be measured by both the number of tickets processed (quantitative) and customer satisfaction (qualitative).
Balance input and output KPIs: Input metrics measure the resources used for a particular outcome, whereas output metrics evaluate the outcome of a process. For example: Number of training hours (input) and improved project completion times (output).
Leading and Lagging Indicators: Leading indicators are used in forecasts, while lagging indicators are used to measure success. A sales representative could be measured by the number of new leads (leading) and the contracts actually concluded (lagging).
Industry-specific KPI approaches
Depending on the industry and role, there are different focal points in the KPIs. Here are some tried-and-tested examples:
Distribution: Instead of just looking at sales figures, combine several key figures. Lead conversion ratio, sales cycle length, customer value (CLV) and upsell and cross-selling rate together give a much more complete and thus meaningful picture of sales performance.
Customer service: Here, the combination of average response time (FRT or ASA), first call resolution (FCR), customer satisfaction and net promoter score (NPS) works well at first glance. This is how you evaluate both efficiency and quality. This connection also significantly reduces the risk of wanting to play out the system.
IT area: Open vs. solved tickets, turnaround times, number of critical bugs and return on IT capital (ROI) cover various aspects of IT performance in general.
Marketing: A combination of cost per lead (CPL), return on investment (ROI), lead-to-MQL ratio and conversion rate shows both the efficiency and effectiveness of marketing work.
The Art of KPI Weighting
Not all KPIs are equally important. This is where the concept of weighting comes into play. Imagine evaluating a project manager. His KPIs could be:
- On-time delivery (40% weighting)
- Budget compliance (30% weighting)
- Team satisfaction (20% weighting)
- Stakeholder communication (10% weighting)
This weighting reflects what is most important for this particular role, but still takes into account other relevant aspects. You should communicate the weighting transparently and check it regularly. In line with the company's objectives, an individual weighting tailored to the project would also make sense.
Avoiding pitfalls – learning from the BSC experience
The experience with the Balanced Scorecard has taught us important lessons that we can apply to KPI-based employee assessments:
The gaming problem: When employees know that they are only measured by certain metrics, they will consciously or unconsciously try to optimise them – often at the expense of other important aspects. That's why you need balanced KPI sets.
The complexity trap: Too many KPIs overwhelm both employees and executives. Over the past few years, it has become established that between at least four and a maximum of ten KPIs should be sufficient for most companies. The same applies to employee evaluation.
The rigidity trap: KPIs must not be set in stone. They need to evolve with changing tasks, new strategies or market conditions.
The isolation: KPIs only work in context. An IT support employee with few solved tickets could be lazy in sharp terms, or he could take intensive care of the most complex problems that others can't solve.
Practical example: The customer advisor
Let's look at a concrete example. A typical customer advisor in a software company. Your regular valuation KPIs could look like this:
Quantitative KPIs (60% Weighting):
- Number of customers supported (20%)
- Customer retention rate (25%)
- Upselling success (15%)
Qualitative KPIs (40% Weighting):
- Customer satisfaction (25%)
- Teamwork assessment (15%)
Each KPI has clear target values and is measured over a defined period of time. Important: She can influence all these factors through her actions.
From measurement to development
KPIs in employee evaluation are not an end in themselves. Your main goal should be the development of employees, not just their evaluation. KPIs help individual company departments, teams or managers to react faster and better to target deviations and unforeseen events.
Use the KPI results as a starting point for development talks:
- Which KPIs did the employee overachieve? What can others learn from this?
- Where were the difficulties? What support is needed?
- Which KPIs may no longer be relevant?
- How can the target values for next year be adjusted?
Use technology intelligently
Modern business intelligence tools can help you effectively manage KPIs. With self-service BI tools, dashboards for key figure reporting can be created with little effort and with just a few clicks.
But beware of the technology trap: The most beautiful visualization is of no use if the underlying KPIs are poorly selected. Therefore, please keep in mind: Technology is only the tool, not the solution.
Don't forget the human component
With all your enthusiasm for measurable metrics, you must never forget: You value people, not machines. KPIs are tools for better conversations, never their replacement.
A good KPI system for employee evaluation is characterized by the fact that it:
- Creating transparent and fair assessment bases
- Demonstrate development opportunities
- Motivation rather than demotivation
- Regularly questioned and adjusted
Integration into the evaluation process
KPIs should only be part of the overall assessment process. A proven structure could look like this:
60% KPI-based assessment: Measurable performance indicators with clear targets 25% Behavioural assessment: Teamwork, communication, leadership skills 15% Achievement of objectives: Individual development goals and projects
This division ensures that measurable performance remains important, but not everything dominates.
Communication is the key
The best KPI approach fails without proper communication. Employees need to know how to measure and calculate KPIs. This allows them to incorporate their own ideas and innovations.
Conduct regular KPI reviews – not only for evaluation, but also for discussion:
- Are the KPIs still relevant?
- Have the framework conditions changed?
- Does the employee need any other support?
- What new KPIs could make sense?
Conclusion: KPIs as a compass, not a judge
The lessons from the Balanced Scorecard show us: Key figures are powerful tools, but they need to be used intelligently. Employee evaluation isn't about pressing people into numbers, it's about helping them achieve their best performance.
A good KPI system for employee evaluation:
- Uses multiple, balanced metrics
- Considers both quantitative and qualitative aspects
- Remains fair and influenceable
- Continues to evolve with the requirements
- Serves development, not just evaluation
KPIs are just numbers at the end of the day. What matters is the conversations, the development, and the trust you build with it. Use it as a compass for better leadership, not as a judge over your colleagues and employees.
The balance between measurability and humanity is the key to a successful, KPI-supported employee evaluation. If you do that, you have a system that is both fair and motivating – and that's worth more than any balanced scorecard.
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