What is a Key Performance Indicator (KPI)?

May 24, 2022   /   by  Roger West

There’s an oft repeated saying in the business world that states “what gets measured is what gets done.” For an organization to get where it wants to be, it must not only be able to identify clear goals, but also put a system in place to evaluate how much progress it’s making towards them. Assigning unambiguous metrics to areas of performance is one of the best ways to quickly determine whether essential business functions are on track or in need of improvement.

What Are Key Performance Indicators?

A Key Performance Indicator (KPI) is a quantifiable measure of how effectively a company is achieving specific strategic objectives. Organizations from every industry use them to track progress and identify areas for improvement. Typically, KPIs are reported on a regular basis, such as monthly or quarterly, to help management make informed decisions about where to focus resources and efforts.

There are many different types of KPIs, but some common examples include revenue growth, leads, market share, customer satisfaction, and employee productivity. Choosing the right KPIs is critical to ensuring that your business is on track to achieve its goals. Every company will have its own unique set of KPIs based on its specific business strategy and operations. Further, it is important to choose KPIs with the goal of achieving long-term success. Choosing KPIs that emphasize short-term wins, even if they are effective in driving growth, may not result in lasting improvements for your business.

The Benefits of Using KPIs

Key Performance Indicators help leaders identify how the company is performing and areas for improvement. This can help set realistic expectations for a business. Using KPIs also helps assess whether or not your unique business strategy is on track to achieve its goals and highlights any areas that may need extra attention. Finally, KPIs can be used to monitor trends over time and optimize operations.

Assigning a KPI to a business function also removes subjectivity from evaluating performance. While it may be worth debating whether the KPI target was realistic, there is no ambiguity over whether or not the target was hit. This quantitative clarity makes it easier to focus on the important issues surrounding the issue. If the number is short of the target, everyone knows that there’s an issue somewhere that needs to be addressed immediately.

What it Takes to Implement Good KPIs

Selecting effective KPIs that provide useful information about your business strategy can be challenging. Start by asking yourself what your company's overall mission statement is. Examples include maximizing value for shareholders, delivering high-quality products that meet customer needs, making your clients look and feel good, or using business to make the world a better place.

Once you've established your company's mission statement, it may be easier to identify key performance indicators that support this goal. Ideally, every person, no matter their position, should have a number of some kind that they’re responsible for meeting. Assigning KPIs creates accountability throughout every level of the organization and clarifies responsibilities.

The Selection Criteria

There are several factors involved in selecting good KPIs:

They should be specific and measurable.

As mentioned previously, assigning a number to results makes it easier to evaluate performance and identify areas where improvement is needed. However, it’s important to be transparent about how that number is being calculated and that it is a fair assessment of performance.

They should encourage long-term growth and improvement.

The ultimate goal of KPIs is to help the organization improve over time. A KPI that only focuses on meeting simple, day-to-day objectives can encourage people to make short-term decisions that prevent future growth.

They should align with company values.

When KPIs reflect the organization’s values, they send a message about what’s important to every employee. If KPIs are measuring tasks or goals that don’t align with those values, it will be very difficult to convince anyone that leadership actually cares about them.

They need to be achievable.

While KPIs can challenge employees to push themselves to achieve them, they can be counterproductive if they’re unrealistic. If people consistently fall short of their KPIs because they’re not achievable, they will quickly lose motivation and become less engaged in their work. They may even choose to leave the organization altogether.

They should be discussed and agreed upon.

No KPI should ever seem like it’s being plucked out of thin air. If people don’t understand why a KPI is important or aren’t clear about how it was determined, they are unlikely to be motivated to achieve it. Setting KPIs is a great engagement opportunity that allows employees to feel like their input and expertise matters.

They should be reported on regularly.

Most KPIs are assessed on a monthly or quarterly basis. This allows time to adjust business strategy if KPIs show that the company is off-track. 

Setting KPIs for Your Organization

Key Performance Indicators are important for every business, and the right KPIs can benefit a company's growth and success. It’s important to choose KPIs that align with your organization's mission statement and values while encouraging long-term growth and improvement.

Figuring out what that mission and values are can be a challenge for a growing company, especially when you’re spending all your resources scrambling to meet demand. That’s why the team at Roger West is here to provide comprehensive messaging and branding services that craft a company story that resonates with your customers and inspires your employees. Talk to our specialists today to find out how you can put your values front and center.

Roger West Creative + Code

Roger West Creative & Code is a full-service digital marketing agency that helps companies build brands, generate leads, and keep customers inspired and engaged. The agency provides a dynamic environment for marketing pros to innovate and team up with clients to drive traffic to vibrant places and send messages that pack a punch.