Key Performance Indicators (KPIs) are quantifiable measurements, agreed to beforehand, that reflect the critical success factors of an organization. They will differ depending on the organization.
Erica Olsen of OnStrategy explains in this brief video what KPIs are, why you choose the metrics that matter most and how to set up a KPI dashboard as an actionable scorecard to keep your strategy on track.
But it takes work to align a company around common goals, establish key metrics and create regular reporting. Is it worth the effort? Here are 21 reasons every business should have KPIs.
- CLARIFIES EXPECTATIONS: What is expected can be communicated in a clear and unambiguous manner
- DIRECTS BEHAVIORS: Unless you explain how to measure progress and success, people create their own assumptions and follow them
- FOCUSES ATTENTION: When people are faced with so many competing demands on their time and resources, what is measured tends to get their attention – particularly when it is linked to reward systems
- IMPROVES EXECUTION: If you don’t measure, it’s a lot harder to know what to execute
- INCREASES OBJECTIVITY: Management is by facts instead of feelings and instincts
- MAKES PERFORMANCE VISIBLE: It puts what is most important out in the open
- FACILITATES FEEDBACK: Feedback in the form of timely, relevant measures is the basic navigational device of any individual or organisation
- IMPROVES DECISION MAKING. One of the major causes of failure in decision-making is poor or non-existent use of data
- REDUCES UNNECESSARY OPINIONS: Instincts and gut feelings may have a place in business analysis but they are mostly relevant to the person who has them. But one clear visualization of key data can clarify a thousand opinions
- QUANTIFIES ACHIEVEMENT: Progress is measured by impact on goals and measured against a standard or target
- PROVIDES FOCUS WHEN THERE IS CHAOS: When an unexpected competitive development or operational snafu occurs, there is a clear picture of the direction what really matters
- IDENTIFIES ACTIONABLE INSIGHTS: Because key metrics are chosen, insights are clearer and easier to identify
- ACHIEVES TARGETS SET BY STRATEGY: If analysis is based on a strategic goal and cause and effect analysis, it’s easier to identify steps that enable your organization to hit key business targets
- MEASURES VITAL ACTIVITIES: In addition to enabling company to hit key targets, KPIs identify the vital activities that enable companies to hit them again.
- IDENTIFIES NEED FOR RESOURCES: No one likes having their budget cut. When your key measurements are established, the need for funding or staff is easier to justify, harder to refute and better for negotiation
- CREATES ACTION: If a group of people meet regularly to look at key metrics chosen around a common goal, “what do we do based on these results” occurs much more naturally and effectively
- CREATES CONSISTENCY IN ACTION: Not only does action occur but it occurs more consistently. Big results usually happen when small steps are taken, continuously.
- FOSTERS COLLABORATION: The people involved with the business work better together because they share the common bond of establishing the strategy, choosing the key metrics, creating the reports and taking the action that come from regular review of the KPIs
- ESTABLISHES ACCOUNTABILITY: When people collaborate around a common goal and key measurements, they more likely to recognize their accountability and it’s more effectively enforced
- MEASURES CUSTOMER SATISFACTION AND EMPLOYEE SATISFACTION FOR REAL: A key metric many company choose as a KPI is customer satisfaction or employee satisfaction or both. The KPI process makes this possible. When look at relative to other key metrics, it provides real evidence for satisfaction and dissatisfaction as well as a course of action if improvements need to occur
- ARE THE ACTIONABLE SCORECARD TO KEEP STRATEGY ON TRACK: The educator and creator of the Peter Principle, Laurence Peter, said: “If you don’t know where you, you’ll probably end up someplace else.” KPIs are the best means a company to stick to strategy and not end up someplace else.
Does your business have KPIs? Do these reflect key benefits to you? Are there others you would add? Does you company need help establishing KPIs to keep your strategy on track?