Setting KPIs that strengthen purpose and enable people

Organisations rarely struggle because they lack ambition or strategy. More often, they lose coherence because what they measure begins to outweigh why they exist. Over time, KPIs, performance systems and incentives quietly reshape behaviour, priorities and culture. What starts as a mechanism for clarity can become a force of distortion.

This is why performance measurement deserves more attention than it typically receives. It is not a technical exercise. It is a human one.

Where purpose and performance begin to diverge

This tension is something I explored in a previous article, Purpose collides with performance: The Uber story

In that example, workers experienced their role through dignity, contribution and the need for stability. The system, however, measured speed, volume and ratings. These were efficient metrics, but they only told part of the story. Over time, the gap between lived experience and measured performance created frustration, disengagement and ultimately external intervention.

That same dynamic plays out in many organisations, often in less visible ways. People are told what matters through purpose statements, but they are managed through KPIs. When the two are not aligned, performance systems begin to override purpose.

As David Kiron, Michael Schrage, François Candelon and Shervin Khodabandeh suggest, KPI governance is not just about selecting the right measures. It is about ensuring those measures continue to reflect what the organisation is trying to achieve. Without this, even well intentioned metrics drift.

What are we really measuring

Graham Kenny’s question is both simple and confronting. What are your KPIs really measuring?

Most organisations rely on proxies. Sales figures stand in for customer value. Utilisation rates stand in for productivity. Engagement scores stand in for culture. These are useful, but they are incomplete.

The risk emerges when proxies become the goal. When that happens, people begin to optimise for the metric rather than the outcome it was meant to represent.

This is where the logic of the Cobra Effect becomes relevant. When incentives are narrowly defined, behaviour follows the reward, not the intent. The system produces exactly what it is designed to produce, even if that outcome is misaligned with purpose.

Outputs, behaviours and the full picture of performance

At the centre of this issue is how organisations define performance itself.

Most systems lean heavily towards outputs. Targets achieved, numbers delivered, deadlines met. These are visible, measurable and easy to compare. They create a sense of objectivity and accountability.

Yet outputs alone rarely tell the full story.

Behaviour, the ‘how’ of performance, shapes culture and sustainability. How people collaborate, how they handle pressure, how they make decisions when trade-offs arise. These elements are less tangible, yet they determine whether performance can be sustained over time.

Focusing only on outputs can unintentionally encourage short term thinking, internal competition and, at times, corner cutting. Focusing only on behaviour can create ambiguity and inconsistency if not grounded in clear expectations.

The strength lies in integration. When organisations measure both what is achieved and how it is achieved, they create a more complete and human view of performance. This also reinforces purpose. People are not just delivering results. They are contributing in a way that aligns with the organisation’s values.

At the centre of this integration is the idea that people need room to flourish. Human performance is shaped by whether individuals feel able to use their strengths, apply their judgement and bring their own style to the work. When KPIs are too narrow, they can suppress this natural variation and encourage people to minimise risk. When measures recognise the quality of contribution as well as the output, they create space for autonomy, creativity and craft. People do more than meet expectations. They grow into the work and strengthen the purpose they are asked to serve.

From annual judgement to continuous conversation

How performance is measured is only part of the picture. How it is discussed matters just as much.

The traditional annual review still holds a place in many organisations. It offers structure and a formal opportunity to reflect. Yet it also concentrates feedback into a single moment, often months removed from the events being discussed. Conversations become high stakes, shaped by memory bias and tied closely to outcomes such as salary increases or promotion.

This creates pressure on both sides. For employees, it can feel like judgement. For leaders, it can feel like a difficult conversation to manage or avoid.

In contrast, ongoing feedback shifts performance from an event to a practice. Conversations happen closer to real time. Learning becomes continuous. Small adjustments replace large corrections.

However, this approach depends heavily on leadership capability. Without confidence and skill, feedback is either avoided or delivered in ways that do not support growth.

The most effective organisations do not abandon structure. They combine ongoing dialogue with periodic reflection, creating both immediacy and coherence.

When performance is tied to reward

Performance systems rarely sit in isolation. They are closely linked to pay, bonuses and promotion.

On the surface, this makes sense. Clear expectations paired with tangible rewards can drive focus and productivity. In roles with measurable outputs, this can be particularly effective.

Yet this connection also introduces complexity.

When financial reward becomes the primary driver, people naturally optimise for what is rewarded. Collaboration can give way to individual performance. Long term value can be sacrificed for short term gain. Intrinsic motivation can diminish as external incentives take precedence.

This is not an argument against reward. It is a call for balance. Financial incentives need to sit alongside recognition, development and a sense of purpose. Without this, performance becomes transactional.

The human experience behind the system

What is often overlooked in discussions about KPIs is their psychological impact.

Performance systems shape how people feel about their work. They influence whether individuals experience fairness, whether they feel safe to take risks and whether they believe their contribution is valued.

When systems are overly rigid or poorly aligned, they create anxiety and disengagement. People begin to protect themselves rather than stretch themselves. Effort becomes cautious rather than creative.

When systems are clear, fair and connected to purpose, they create trust. People are more willing to contribute, experiment and grow.

This is where leadership behaviour becomes critical.

Feedback as a leadership practice

Even the most well designed performance system depends on how leaders bring it to life.

Two common patterns often emerge.

Some leaders avoid feedback altogether, concerned about damaging relationships or creating discomfort. The intention is understandable, yet the outcome is ambiguity. Without clear feedback, people are left to interpret expectations on their own.

Others lean towards overly critical feedback that focuses on what is wrong without offering a constructive path forward. This can erode confidence and reduce openness to future feedback.

Neither approach supports performance.

Effective feedback requires a different stance. It is grounded in respect and clarity. It connects individual performance to shared purpose. It focuses on growth rather than judgement.

This is not about being soft. It is about being precise and human at the same time.

Reconnecting performance with purpose

The challenge for organisations is not to design a perfect set of KPIs. It is to maintain alignment over time.

Omri Morgenshtern and Tarik Fadil’s idea of a unifying KPI speaks to this. When done well, it creates a clear sense of direction. However, it must be supported by a broader system that captures nuance and prevents oversimplification.

Ultimately, alignment is sustained through practice.

Leaders need to continually ask whether their metrics reflect what truly matters. They need to pay attention to how those metrics are experienced by the people being measured. They need to be willing to adjust when unintended consequences appear.

Most importantly, they need to ensure that performance conversations reinforce purpose, not replace it.

Final reflection

KPIs are often treated as neutral tools. They are not. They are signals, incentives and, over time, cultural forces.

They shape how people prioritise, how they behave and how they experience their work.

When thoughtfully designed and carefully led, they create clarity, alignment and the conditions for people to do meaningful work.

When they drift from purpose, they do something else entirely.

The work, then, is not simply to measure performance. It is to ensure that what is measured continues to serve the reason the organisation exists, and the people who bring that purpose to life each day.