A Key Performance Indicator, or KPI, as it is commonly referred to, is a measurement that helps gauge the success of a business, department, or team. By tracking the outcomes that are being achieved, a company gets insight into what is and what is not working.
KPIs are Metrics, Not Goals
KPIs are not goals in themselves. Instead, KPIs are the metrics being captured and analyzed. They serve as indicators of the health of the business. That said, most businesses will set targets or goals for each KPI to help assess if success is being achieved.
KPIs are Targeted
A KPI is not comprehensive of every aspect of a team or department’s work; by design it is targeted, looking at a specific aspect of the work. The focused nature of a KPI makes it a good proxy for how the business or department is doing overall.
A KPI is similar to taking a patient’s temperature at a doctor’s visit. This routine practice takes only a few seconds but gives the medical staff significant insight into the overall health of the patient. The temperature doesn’t tell the whole story, but it is a good initial indicator of basic health.
KPIs are Practical
In the same way that taking a person’s temperature is routine and simple to do, KPI measurements should also be practical and not overly burdensome. The purpose of tracking KPIs is to use the information; in order for the data to be useful it must be straightforward. Otherwise, the work involved with gathering the data overshadows the benefits, and routine review of the numbers won’t happen. Regular review is critical to shedding light on what is or is not working—providing insights that inform decision making.
The Importance of KPIs
KPIs influence behavior and performance throughout the organization, as people tend to perform based on how they are measured. For this reason, it’s important to be thoughtful about what information is tracked.
For example, if you are measuring the number of widgets made on a production line, it may be better to create a KPI at the team or shift level instead of at the individual level. This places the focus on the team’s performance and encourages everyone to work together to achieve the best results. If each individual’s performance is the focus, employees will be motivated to earn high personal numbers, regardless of how the team performed in total. Such a KPI may also fail to promote the quality of the widget, as the focus is on the quantity with no consideration for quality.
Another example of a KPI having unintended consequences is tracking work attendance. If you create a KPI that tracks who or which team misses the fewest days, you will be subtly incentivizing employees to come to work even when they are sick.
A final example is an auto dealer that motivates its sales staff through a KPI that tracks profit-per-vehicle sold, which may unknowingly encourage behavior that puts short-term profit over long-term customer satisfaction.
People will focus on what you measure, in both good and bad ways. It’s important to remember this when selecting KPIs for your organization.
The concepts from this article were taken from Key Performance Indicators: Measuring and evaluating work outcomes. Available through The ReWild Group and Amazon, the book explores in-depth this and other concepts while providing illustrations to help business leaders incorporate the ideas into their organizations. Get your copy today to start benefiting from Key Performance Indicators in your company.