Key performance indicator, or KPI, is a quantitative measurement of performance over time for a certain goal. KPIs offer goals for teams to strive for, benchmarks to evaluate progress, and insights that aid individuals throughout the organisation in making better decisions. Key performance indicators support the strategic advancement of every department within the company, from marketing and sales to finance and human resources.
To have the biggest impact on your strategic business outcomes, you should monitor KPIs. KPIs assist your teams concentrate on what’s important and support your strategy. A key performance indicator would read “targeted new customers per month” as an example.
Metrics assess how well routine business operations support your KPIs. Although they have an impact on your results, these are not the most important metrics. “Monthly Store Visits” and “White Paper Downloads” are a couple of examples.
KPIs Are Important, But Why?
KPIs are a crucial tool for ensuring that your teams are contributing to the general objectives of the company. Here are a few of the main justifications for why key performance indicators are necessary.
- Keep your teams on the same page: KPIs keep teams moving in the same direction whether measuring project success or employee performance.
- Offer a health check: From risk factors to financial indicators, key performance indicators give you a realistic view of the state of your organisation.
- Make adjustments: KPIs enable you to see your successes and shortcomings clearly so that you may increase what works and decrease what doesn’t.
- Hold your groups liable: Make sure everyone contributes value by using KPIs that enable staff to monitor their development and facilitate management moving things forward.
Having an Understanding of Key Performance Indicators
KPIs, also known as key success indicators (KSIs), differ between businesses and industries based on performance standards. A software company, for instance, can use year-over-year (YOY) revenue growth as its main performance measure in order to achieve the quickest growth in its sector. A retail chain, on the other hand, would view same-store sales as the ideal KPI statistic for assessing growth.
Data collection, storage, cleaning, and synthesising are the foundation of KPIs. The data could pertain to any division across the entire organisation and could be either financial or non-financial in nature. KPIs’ objective is to clearly communicate outcomes so that management may make more informed strategic decisions.
Financial KPIs and Metrics
Internal management may, however, find it more beneficial to examine certain figures that are more pertinent to studying the issues or facets of the business that management wants to study. For internal analytical purposes alone, a business might use variable costing to recalculate the balances of some accounts.
Measures of Customer Experience and KPI
Customer service teams utilise these metrics to have a deeper understanding of the level of service that has been provided to customers.
KPIs and Process Performance Metrics
Measurement and monitoring of operational performance across the organisation is the goal of process metrics.
Enhances Worker Engagement
Even though we’ve already mentioned it, it bears repeating: KPIs encourage staff to collaborate to achieve a common objective. Employee engagement, a problem that many organisations face, can have a significant financial impact. But KPIs are useful. These metrics—individual or organisational—are a useful way to assess performance, which is closely related to employee engagement.
In reality, companies with an engaged staff have increased productivity, 21% higher profitability, and higher customer engagement. On the other hand, disengaged workers point to the same problems: inadequate strategic communication between management and individual contributors. KPIs aid in resolving this issue.
Ties Your Culture and Mission Together
Your goal should be to motivate staff to arrive at work each day with a fresh enthusiasm. Your objective and your KPIs need to be closely related for employees to feel like their efforts are contributing to both goals.
Clear out any confusion by ensuring that your KPIs contribute to your end objective and that employees understand how and why they are doing so.
makes Everyone Responsible for Their Actions
Individual performance management models have historically focused on goal-setting, performance evaluation, and activity management. Therefore, why not also use KPIs in performance management?
Employees will be able to gauge their contribution and how their regular tasks—arguably the core of their job—affect the achievement of more important organisational objectives with the aid of performance KPIs. With KPIs, everyone is moving in the same direction and is glad to contribute to your success.
Every organisation requires operational and strategic measures, some of which are usually already in place. Strategic measures monitor progress towards strategic objectives with a focus on the desired or expected outcomes of the ultimate result or intermediate outcome.
The Most Common KPIs
It’s critical to select the appropriate indicators for your firm because they frequently drive performance objectives and results. By choosing fewer, more achievable KPIs for each goal, businesses can perform the necessary assessments and maintain employee alignment.
What Are the Key Performance Indicators That Organisations Use?
KPIs vary from one organisation to the next based on the priorities of the business. For instance, a public business’s stock price can be one of its key performance indicators, whereas a privately held startup company might use its number of new customers added each quarter as a KPI. Even direct competitors in a given industry are likely to keep an eye on various KPI sets that are specific to their own management philosophies and business objectives.