Key performance indicators (KPIs)

Key performance indicators (KPIs), or key success indicators (KSIs), are based on a company’s goals and vary depending on the company and industry. KPIs are usually stated in a company’s annual report.

How it works

KPIs are the non-financial measures of a company’s performance—they do not have a monetary value but they do contribute to the company’s profitability. Any company department can adopt KPIs to gauge its performance. A KPI for an accounts department might be the percentage of overdue invoices, as this will help determine the department’s efficiency. This is an example of a lagging indicator—it is an outcome and therefore easy to measure, but not straightforward to influence. Companies also look for leading indicators, which are focused on inputs and easier to change. A leading KPI for the accounts department might be the percentage of purchase orders raised in advance.

Corporate KPIs

KPIs can be set up as dashboards on computers so that they can be checked frequently. These dashboards show examples of KPIs specific to departments in a company. Having set their KPIs, the departments are subject to managerial review, which could result in action if KPIs are sub-standard.

Sales and marketing

Net promoter score (NPS—how many Number of customer complaints;
customers would recommend company); customer retention rate; customer lifetime value (total amount of money generated by one customer)

Accounting

Number of retrospectively raised purchase orders; finance report error rate (measures the quality of report); average cycle time of workflow; number of duplicate payments

Customers services

Number of customer complaints;
customers would recommend company); customer retention rate; customer lifetime value (total amount of money generated by one customer)
customer satisfaction (measured over time); average email response time; number of products sold compared to total sales calls made

Human resources

Economic value of an employee’s
skill set; employee satisfaction levels; revenue per employee; rate of employee turnover

Operations

Project cost (difference between budgeted cost and actual cost of work); time taken to get a product to market; optimally running operations

Environment and sustainability

Waste recycling rate; size of carbon footprint; size of water footprint (amount of water usage); energy consumption

BALANCED SCORECARD SYSTEM

This strategic system offers a different way of monitoring a company’s performance. It was proposed by Robert Kaplan and David Norton at the Harvard Business School in the 1990s, and Harvard Business Review has cited it as one of the most influential business ideas of the last 75 years; it is estimated that over 50 percent of large companies in the US, Europe, and Asia use the approach. The Balanced Scorecard consists of four ways to view an organization’s performance:

• Learning and growth Employee training and corporate culture
• ❯ Business processes Includes specific measurements for monitoring daily performance
  ❯ Customer perspective Customer satisfaction
• ❯ Financial perspective Traditional financial data

31%
of companies use a computer dashboard to monitor KPI measurements