KPI

WHAT IS A KPI – KEY PERFORMANCE INDICATOR?

By /

1. What is a KPI?

KPI (key performance indicator) is a measurable value showing how effectively a company achieves key business objectives. Organizations use KPIs to assess success. High-level KPIs cover overall performance; low-level KPIs cover departmental processes such as sales, marketing, HR, or support.

To develop a KPI strategy, start with the basics:

  • What are your organization’s objectives?
  • How will you plan to achieve them?
  • Who can act on the information obtained?

As you repeat and develop the process, you will better understand which business processes belong in the KPI overview and with whom to share it.

2. KPI development stages

2.1. Defining KPIs

KPIs can be confused with business metrics. KPIs should connect a specific business outcome with a performance measure.

Answer these questions to formulate KPIs:

  • What outcome do you want?
  • Why is this outcome important?
  • How will you measure progress?
  • How can you influence the outcome?
  • Who is responsible for the business outcome?
  • How will you know you achieved the outcome?
  • How often will you review progress?

2.2. Setting KPIs

KPIs must fit your business and help achieve your goals. Follow these steps to write clear, measurable KPIs.

2.2.1. Write a clear KPI objective

Your KPI must connect to a key business objective. Otherwise, your work does not contribute to the organization. KPIs should reflect strategic objectives and tell your company’s story.

2.2.2. Share your KPI with stakeholders

A KPI is communication and needs context. Explain what and why you measure it. Share it with employees and stakeholders so they understand the direction. Listen to feedback and questions to refine communication of goals and KPIs.

2.2.3. Review your KPI consistently

Review progress against the KPI and whether the KPI is effective. If progress is absent, the KPI goal may be unsuitable and should be reconsidered.

2.2.4. Create actionable KPIs
  • Review business objectives: Remember, KPIs are not fixed. They evolve as business objectives evolve.
  • Analyze current performance: Are your goals achievable? Analyze performance to identify successes and areas for improvement, including historical data, and establish a baseline.
  • Set short- and long-term KPI goals: Set long-term quarterly or annual goals, then work backward to define milestones or short-term goals. Reassess and adjust as you pursue larger goals.
  • Review goals with your team: “Teamwork makes the dream work!”. Everyone must stay informed so you all work toward the same final goal.
  • Review and adjust progress: Make checking your status a habit. Regularly review performance and KPI relevance; once habitual, it becomes easier.

2.3. Measuring KPIs

One way to measure KPI performance is the SMART framework. What is SMART?

  • Is your goal specific?
  • Can you measure progress toward your goal?
  • Is the goal realistically achievable?
  • How is the goal relevant to your organization?
  • What is the timeframe for achieving it?

Specific (Specific), Measurable (Measurable), Achievable (Achievable), Relevant (Relevant), Time – Bound (Time-bound) = SMART.

Expand SMART by adding evaluation and reevaluation. KPIs are ongoing; review them continuously to ensure they remain achievable and on track.

2.4. KPI reporting

The easiest KPI reporting method is a dashboard, providing a real-time view of business performance against goals. Unlike quarterly reports, dashboards enable quick reporting at any time.

3. Why is KPI development important?

KPIs guide you and your organization toward goals. Achieving them depends on focused, consistent delivery of results.

3.1. Employee engagement

KPIs align all employees toward a common goal.

Employee engagement can directly affect your business results. For individuals and organizations alike, KPIs are a useful mechanism for measuring performance and are directly linked to employee engagement.

In fact, organizations with an engaged workforce see higher levels of customer engagement, productivity, and profitability—up to 21% higher.

On the other hand, disengaged employees also create similar problems: poor communication about strategy between management and individual contributors. KPIs can help address this issue.

3.2. Connecting Purpose and Company Culture

Your KPIs must be connected to your organization's mission. “Making money” is not a mission, nor is it something that will connect with employees on a deeper level. You should encourage employees to come to work with renewed enthusiasm each day. There needs to be a direct connection between your mission and your KPIs so that employees feel their work has a meaningful purpose and contributes to achieving both. Make sure your KPIs work toward the ultimate goal. At the same time, employees should clearly understand how and why they are working in that direction.

3.3. Helping Everyone Take Responsibility for Their Own Performance

Performance KPIs help employees measure their impact on work outcomes. They understand how effective their daily activities are. Measurable job performance demonstrates the foundation of their roles and their contributions to the success of the organization's broader goals. KPIs align everyone in the same direction, making everyone a happy contributor to the company's success.

The best KPIs are directly connected to your organization's goals and mission.

Learn more about tools that support the identification of professional competencies, skills, and personality:

Contact Quest Now for Consultation on Competency Measurement Solutions!