Not sure your organization is using the right KPIs?
The trouble is, there are thousands of KPIs to choose from. If you choose the wrong one, then you are measuring something that doesn’t align with your goals. How, then, should you go about selecting the right KPIs for your organization?
If you’ve found yourself asking that very same question, you’re not alone. It’s not unusual for companies to stray off course as a result of using the wrong measures. But the sooner you uncover your mistakes, the better—and you can always get back on track by revisiting your KPIs.
We’ve packed a lot of KPI insights into this article:
One of the questions we're asked regularly is, "What is a KPI?" We've found that the clearest way to explain the concept is to break it down into three levels:
Simply put, KPIs drive organizational performance.
You’ve likely heard it said that “what gets measured gets managed”—we’ve found this to be true. If you’re focused on your KPIs, your staff will be focused on changing the appropriate behaviors. On the opposite side of the coin, if you choose the wrong KPIs, you run the risk of driving unintended behaviors.
Let’s say you manage a casual food business. One of your goals is to conserve food—so you choose a KPI related to serving smaller portions. An unintended consequence of this action could be angry customers who would rather dine elsewhere. Even though you’ve technically met your goal, the result shows you went after the wrong KPI. A better thing to measure may be about how optimal is your fresh food ordering process so you have to throw less away (with the KPI being “amount of food waste”).
There are two rules for selecting the right KPIs:
There are two common missteps made during the selection process:
Introducing KPIs into your work environment has the potential to create some challenges. For one thing, not everyone may fully understand them and how they are used. Put together some educational sessions to explain the concept and why KPIs are going to be important for your organization moving forward.
Also emphasize that KPIs will not be used as enforcement tools to control people’s behavior. For instance, wWhen a customer service rep sees, for instance, a KPI metric related to average handle time, they might automatically assume that hitting the target rests on their shoulders alone—and that there will be negative consequences if they don’t meet it. If you don’t correct that impression, you’ll unwittingly encourage other behaviors that will invariably work against you.
There’s a huge difference between selecting the right key performance indicators (KPIs) and creating a culture of monitoring, reporting, and improvement. To help people embrace the use of KPIs and motivate them to change, you’ll need to set up a performance management system that is consistent, transparent, and simple to use. (For more details about the cultural elements you need to put in place, read this article.)
It is frequently said that “What gets measured gets done,” but how does the measuring itself get done? Below are the important steps to consider in effectively tracking KPIs as a part of your performance management framework.
While your organization has many moving parts that are integral to its operations and performance, it is not possible, or efficient, to track everything going on internally. For one thing, not all measures are important enough to track. For another, tracking too many measures creates unnecessary work that ultimately won’t be useful.
Instead, choose one or two metrics for each of your objectives that will be most helpful in achieving them. Multiple metrics could apply, but only a couple of them will be impactful enough to improve performance.
For instance, say your organization has an objective to improve your employee training and development programs. You could measure the percentage of trained employees or training time, but neither of these correlate well with the real result you’re looking for: developing peoples’ skills to handle more advanced roles. A better measure might be a reduction in errors as a result of the training, for instance.
In addition to making sure your chosen KPIs are true indicators of performance, they should also have some additional characteristics that will signal their effectiveness. Ask these questions about each KPI you’re considering:
If you answer “no” to many of these questions, it may be a sign that the KPI either needs to be altered or replaced altogether.
KPIs are an important tool in measuring progress, but they are more likely to be acted upon if someone is held responsible for tracking and reporting on them. An added benefit: The responsible party is also usually more inclined to want the measure to succeed, rather than accept underperformance. Even if all the person’s responsible for is reporting on their KPI, you can bet they’d rather report good news than bad news—which motivates them even more.
You may have an analyst responsible for collecting the data. This is important, but maybe more important is having a business leader who is responsible for “reporting” on the measures. The business leader should be able to analyze the results, put the data in context, and explain whether performance is good or bad and why. The individual who is responsible for the measure will be able to influence the resources dedicated to improving the measure.
Finally, it’s necessary to continually review your KPIs and their performance on a monthly, quarterly, or other predefined reporting frequency. Regular monitoring makes it easy to see the time frame in which something may have underperformed or overperformed, as well as what may have happened within this period to cause the change.
To ensure the whole team is on the same page—and because many measures and goals are interconnected—it’s crucial to report these findings to all relevant parties. Many organizations try to use spreadsheets to track KPIs, a method that often comes with issues like version control conflicts and calculation errors. A better (and simpler) alternative is to use performance management software, like ClearPoint, to create customizable KPI dashboards to report to different audiences. You can make one dashboard for departments working on KPIs, and another that gives a high-level overview to executive teams.
Another benefit of using ClearPoint is its ability to link your KPIs to your organizational objectives. For companies that are serious about strategy execution, the ability to link KPIs to objectives is significant because:
None of this is to say you can’t use spreadsheets to view your KPI data, but with ClearPoint, you save time and improve the information available for decision-making.
We've broken down our list of KPIs into the four categories of the Balanced Scorecard: Financial, Customer, Process and People. Make sure you select a few from each category so that your strategy is well balanced across the organization.
Note that the right KPIs for you might not be the right KPIs for another organization. Make sure you’ve researched as many key performance indicators as you can to determine which ones are appropriate for your industry. From there, determine which KPI targets will help you further understand and meet your goals, and then integrate them throughout your department. KPIs should match your strategy, not just your industry.
We’re more than happy to help. We offer a number of KPI-related resources, including KPI libraries for a variety of industries.
Ted is a Founder and Managing Partner of ClearPoint Strategy and leads the sales and marketing teams.