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What is Key Performance Indicator (KPI)? Types and Examples

18 min read

Not everything that can be counted counts, and not everything that counts can be counted.

– Albert Einstein

The fundamental tenet of effective performance management is that “What gets measured gets done”. In an ideal system, a company develops a series of measures and targets that extend from its high-level strategic goals all the way down to the day-to-day operations of its front-line staff.

If you would like to have a better vision for an organization’s future, it is a must to keep track of the business goals.

And to do that, it is important to make sure that the employee’s goals align with the organizational goals.

This is when KPIs come into play.

What are KPIs?

A quantitative gauge of performance over time for a particular purpose, KPI stands for Key Performance Indicator. KPIs are defined as the targets that are key to the success of an organization. They offer goals for the teams to strive towards, benchmarks for assessing progress, and insights. These help business leaders throughout the business in making better decisions.

It’s more than just numbers and goals when it comes to KPIs.

As you know, Key Performance Indicators (KPIs) support all aspects of the organization, from marketing and sales to finance and HR, in moving forward strategically. They also facilitate cross-departmental collaboration and are helpful to the stakeholders.

Everyone in the business world knows how to keep their goals SMART. But let’s see what the SMARTER technique is in this article.

What’s the difference between SMART and SMARTER? Before we explore it, let’s dive deeper into the importance and role of KPIs.

KPIs are more like road signs that keep you on track. KPIs help an organization to drive towards success. Any organization, no matter the size, can improve operational efficiency by establishing and measuring KPIs.

What are KPIs and its features

KPIs are simple yet powerful tools that can transform an organization from good to great. Most companies use KPIs to track the status of their goals, and this is how they assist in boosting a company’s growth:

Driving teams to the right objectives:

KPIs help managers know when and how to motivate their employees so that they stay self-driven and engaged.

High morale:

KPIs help increase employee morale that boosts a common sense of goal. It also promotes both team and individual performance.

Alignment with business goals:

Through formal and informal processes, they help align the employees, resources, and systems to meet the company’s strategic objectives.

Ability to foresee and identify challenges:

It improves business performance by helping people communicate with each other to solve problems faster than if they are working in silos.

Periodic performance monitoring:

The managers can monitor and track the key performance indicators, spot trends, and identify weak areas in their business.

Effective Decision-making:

This allows them to make effective decisions about adjusting their operations to ensure that the business runs smoothly.

Transparency:

An organization’s transparency can be defined as seeing through to determine whether and how well it is doing and what it is supposed to do. In other words, the KPIs replace opaque walls with transparent glass so that we can see what is actually going on.

Accountability:

Ensures everyone is held accountable for their actions and that hard work is recognized and rewarded.

Importance of KPI

KPIs are critical for any business’s success. They measure performance and progress toward a specific goal over time. They assist in maintaining the organization’s primary objectives in focus.

Businesses employ KPIs to determine if they are accomplishing their primary objectives. The KPIs track the organization’s health and performance. The departments in the organization use KPIs to show the value of their efforts in the business.

Key Performance Indicators help teams work toward the set of outcomes and solve issues that stand in the way of those goals. And employees use KPIs to understand how their efforts contribute to the project team and organizational goals.

But why are they so important for an organization? Let’s have a close look:

 

Importance of KPIs and its 7 reasons

1. Monitor company health

The KPIs serve as an indicator of a company’s health. To monitor the vital indicators of a business, you only need a minimum number of KPIs. Measure the things you wish to alter to direct the energy in the right direction. Make sure that you select the right KPIs for your organization.

2. Keep your teams aligned

KPIs keep the teams headed in the same direction, whether used to gauge project success or employee performance.

3. Measure progress over time

Revenue gross, the number of staff, customer satisfaction, or anything else might be considered. KPIs are established for you and your team each quarter so you can monitor your progress. Then, your HR team can monitor them weekly to ensure they’re progressing in the desired direction.

4. Improvise and stay on track

You should track your leading indicator KPIs and present performance to determine how close you are to attain your objectives. Using these indicators, you can determine whether you are on pace to achieve your goals.

5. Hold teams accountable

Make sure everyone contributes value by using KPIs to enable employers to track employee performance.

6. Solve problems or bag opportunities

Utilize a dashboard that combines KPIs so that you have the necessary data at hand to address issues or seize opportunities.

7. Analyze patterns gradually

When you measure the same KPIs quarterly, you might see patterns in the data that may benefit your business in several ways.

What happens when KPIs are not implemented practically:

  • Lack of clarity of the firm’s principles creates greater confusion at lower levels than at higher levels.
  • Misunderstanding the actual goals of the organization with other objectives like PR-type goals.
  • Not able to plan long-term goals. Can’t keep up with the trends.
  • No Alignment between the department and organizational goals.

An Organization with KPIs vs an Organization without KPIs:

With or Without KPIs List

Types of KPIs

There are various types of Key Performance Indicators. Implementing the right KPIs as per the requirement and what changes the organization needs to succeed is important. Ever implemented a KPI into your system and noticed that it doesn’t deliver the desired outcome? This happens when businesses choose the wrong KPIs.

Let’s explore what the different types of indicators are:

1. Quantitative Indicators

A Quantitative indicator represents values like rating scales, dollars, or weight in continuous or discrete numbers, such as percentages, whole numbers, or ratios. These are the most straightforward indicators to quantify performance.

2. Qualitative Indicators

Indicators such as these are not numerical but expressed in feelings or opinions. Feedback from employee satisfaction surveys is an example of qualitative data.

3. Leading Indicators

It is possible to predict successful future outcomes of a business process using leading indicators. These are the variables that can identify longer-term trends.

4. Lagging Indicators

With lagging KPIs, the business can compare its past and current performance in a particular field.

5. Input Indicators

It is a type of KPI that tracks the resources necessary for an outcome to be achieved, such as extra funding or staff. Monitoring input indicators can help companies ensure that their resources are being used efficiently.

6. Output Indicators

As the name indicates, these serve as the reflection of the outcome. By analyzing output indicators, businesses can gain insight into their performance and take action accordingly. This implies the success or failure of a company’s operation, revenue growth, and the rating of customer reviews.

7. Process Indicators

These indicators show how well a business’s processes are functioning and how efficient they are. It also helps in finding any necessary improvements.

8. Practical Indicators

They mainly engage in regular feedback and observations that challenge the intent of a company’s current operations. It provides many useful indications that could be exclusive to the business.

9. Outcome Indicators

Outcome indicators are essential for measuring the success of any project or initiative. They help us track progress toward the objectives, whether they are short-term or long-term.

10. Financial Indicators

Financial indicators gauge the stability and growth of an organization’s finances. When combined with other KPIs, this indicator can provide a more comprehensive view of the firm’s financial viability.

11. Actionable Indicators

A company’s potential, whether through political action or a change in corporate culture, is measured by actionable Indicators.

12. Directional Indicators

Practical indicators are unique to the company’s internal processes, whereas directional indicators assess the company’s performance with respect to the competitors.

Effective KPI practices

Implementation of KPIs in an organization is not enough. Implementing effective KPI practices is more important. KPI practices that are effective for any organization are listed below.

  1. Determine which KPIs are most important for tracking in alignment with business goals.
  2. Be transparent and clear with the highly visible KPIs.
  3. Establish KPIs that are realistic and attainable.
  4. Incentivize hitting the KPIs.
  5. Schedule check-in meetings to track your KPIs.
  6. To avoid data overload, narrow down what you want to track.
  7. Use SMARTER practice, not just SMART: Specific, Measurable, attainable, relevant, time-bound, evaluate, reevaluate.

Let’s see what’s the SMARTER practice or the 6A’s is all about.

Specific:

Begin with a particular goal that can be separated. Pick it apart and remember that many KPIs are used to assess customer satisfaction, retention, and other factors.

Measurable:

Find a precise method to measure the information that must be recorded and ensure that simplicity is crucial.

An important part of managing KPIs, there should only be one reliable measurement technique.

Attainable:

Make sure the goal is something you can easily achieve by checking its attainability. Verifying that the organization has previously accomplished its goal is one approach to testing this.

Relevant:

Check if the objectives are pertinent to the target audiences. Does reaching this goal affect the people you are attempting to engage?

And if so, how?

Time-bound:

Create schedules and deadlines to gauge the KPI properly. Extend the timeframe for the next round if the outcomes of the initial trials are exactly what you desired.

Evaluate:

Check to see if the KPIs offer the data that can be utilized to attain the goals that have been defined. Brainstorm the potential alternate viewpoints that may be looked at together.

Reevaluate:

To ensure consistency, do repeated tests before the regular rollout. Ensure that the data delivers precise and detailed solutions since effective organization plans are based on KPIs.

The Savvy Six A’s:

Businesses can benefit from analytics if used in the right way. The quality of the data will determine the quality of the analytics. To get the correct data for your business, choose the right metrics that can be used as Key Performance Indicators (KPIs).

You can save time, effort, and money by tracking strong KPIs instead of weak KPIs for evaluating business performance.

When designing your KPIs, consider these 6 attributes to ensure they are helpful, value-creating metrics.

 

6A of KPIs list

1. Aligned:

A crucial part of setting KPIs is aligning them with the business objectives. Nevertheless, businesses set short, medium, and long-term goals. With so many goals, prioritizing which to pair with KPIs is difficult. Establish KPIs at different levels of management to meet all those objectives.

2. Attainable:

The indicator should be easily reached to be measured, making it attainable. When the trial kicks into gear, if the data doesn’t eventually come in consistently, there could be a problem.

3. Acute:

The KPI increases others’ understanding of the objective and its assessment or makes it intense. A different indicator may be considered if the KPI’s objective is uncertain.

4. Accurate:

Since the information gained from a KPI will be involved in achieving future goals, it must be accurate and reliable to prevent misconceptions.

5. Actionable:

KPI outcomes generate information that affects a course of action. KPIs should drive the development of new operations; else, the indicator is ineffective.

6. Alive:

The data can be used for the organization’s whole existence. It must become a constant in a sector that is constantly evolving.

Practical tips for using KPIs in your business:

While most businesspeople know the importance of the Key Performance Indicators (KPIs), they frequently struggle with implementation. In reality, 90% of the business metrics are gathered and are rarely used to make decisions.

KPIs are one of the essential tools to boost an organization’s growth. The way to the organization’s success is challenging. You are well aware that it’s not a cakewalk. It is easier said than done.

Simply introducing KPIs into the organization’s system will be nothing good. Instead, know how to implement the KPIs practically in your organization.

  • Consider consumer, business, and product goals when choosing KPIs.
  • Establish SMARTER goals.
  • Make use of ratios and ranges.
  • Measuring everything that can be measured is a bad idea.
  • Avoid vanity metrics. Instead, focus on metrics that demonstrate actual progress and impact.
  • Make sure that you use both qualitative and quantitative KPIs.
  • Consider indicators other than those related to finances and customers.
  • Utilize trends: Go with the flow.
  • Analyze your product regularly with a product scorecard.
  • Expectations should be clearly defined.
  • Measure no more than ten KPIs.
  • Keeping track of the KPIs every week or month is recommended.
  • Make sure the list of the KPIs is ready for revision.

But let me be honest, the real indicator of success is the number of snacks you can fit in your desk drawer!

Conclusion:

Ready to take your organization to the next level?

Introducing the KPIs into a business system is easy, but carrying them out effectively is something businesses have to look into.

Keka, the first Indian SaaS company that received $57M series-A funding, always prioritizes KPIs.

It’s your call now! Decide which KPIs you’d like to implement in your organization. If implemented already, but there isn’t progress anymore, there might be something that’s going wrong.

Let us know if you would like a one-on-one discussion with one of our experts. We are always ready to help.

Our performance management software helps with everything that your business has to deal with KPIs. Explore our Incredible Performance & Careers module and find solutions for your business challenge

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    Meet the author

    Keka Editorial Team

    A bunch of inspired, creative and ambitious youngsters- that’s Keka’s editorial team for you. We have a thirst to learn new subjects and curate diverse pieces for our readers. Our deep understanding and knowledge of Human Resources has enabled us to answer almost every question pertaining to this department. If not seen finding ways to simplify the HR world, they can be found striking conversations with anyone and everyone , petting dogs, obsessing over gadgets, or baking cakes.

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