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Defining Great Key Performance Indicators

As more and more data is collected at all levels of a business, using data to an organization’s advantage is vital. One way that successful organizations utilize their data is by defining and tracking key performance indicators (KPIs) across the business to drive performance at an individual, departmental, and company-level.

Some of the important benefits of being a KPI-driven business include:

  1. Consistency. Giving departments and employees clear, attainable goals allows companies to plan better, knowing that everyone is motivated and driving toward the same goal.
  2. Performance transparency. When individuals and departments have KPIs with constant access to dashboards showing performance against goals, individual performance becomes very clear. This reduces surprises at all levels of the organization–fewer surprises at performance reviews, and fewer surprises throughout the year as compared to planned success.
  3. Translate vision and strategy to day-to-day. KPIs translate high-level strategy decisions down to tactical levels for employees–ensuring that they know how to help the company succeed.

Anatomy of a Great KPI
The benefits of KPIs make KPI implementation a clear, relatively low-cost option for increasing business performance. However, not all KPIs are created equal. A great KPI should be:

  1. Actionable. A system of KPIs is only effective if it drives employee behavior on a day-to-day basis. For example, if employees know how many clients they need to sign, hours they need to bill, or clients they need to see in order to help meet a monthly goal, this informs their behavior and time management on a daily basis.
  2. Role-specific. Company-level KPIs are certainly important, but to realize all the benefits of a KPI-driven organization, employees should have role-specific KPIs that tie back to company-level KPIs. For example, an accountant or financial analyst isn’t likely to be able to actively acquire new customers, but they can help to drive down customer acquisition cost, contributing to a company-level goal of increasing new customers.
  3. Key. This sounds obvious, however, one of the biggest KPI implementation mistakes is an excessive number of KPIs, when KPIs really just become PIs. Studies show that employees can only focus on achieving three-to-five KPIs at one time. Beyond this threshold, KPIs will cease to create focus and instead lead to confusion about what to accomplish on a daily, weekly, and monthly basis. This doesn’t mean that you can’t measure other items – but employee efforts should drive towards accomplishing only three-to-five KPIs.

Top-down Approach to KPI Creation
While the anatomy of each individual KPI is important, all KPIs should flow down from company-level KPIs. Our team believes that at its core, each business has one true overarching KPI. This KPI should be closely tied to the mission of the company and the service(s) it provides, not focused on revenue or profitability goals. What value does the business provide to the market? How many people are touched by your non-profit? How do you drive efficiency for your customers?

Once this overarching KPI has been determined, the company should develop three to four other company-level KPIs. These additional KPIs should have a wide focus–revenue, profit margin, customer satisfaction, fulfillment and delivery, on-time project completion, employee satisfaction, etc.–as these KPIs will ultimately represent the contributions of each department. From here, department and role-specific KPIs should be developed, anchoring each KPI to one of these company-level initiatives.

How can KSMC help?
KSMC has experience using a combination of KPI definition and business intelligence solutions to help your organization define what success looks like and support you in reaching those goals. Contact our team to get started.

About the Author
Katy Jenkins is a Senior Consultant specializing in Business Intelligence (BI) at KSM Consulting. In this role, Katy works with clients to uncover business needs and apply BI solutions that create a data-driven culture by streamlining everyday tasks and processes. Connect on LinkedIn.