Genuine KPIs are a needle in a haystack
Not all indicators are genuine KPIs. Finding the right KPIs for your company can be a lot like looking for a needle in a haystack. To make your search a bit easier, we’ve described the 7 hallmarks of genuine KPIs, allowing you to identify and build on them more quickly.
The 7 hallmarks of key performance indicators
What sets a Key Performance Indicator apart from a regular indicator? This question is the key to a lot of the confusion surrounding KPIs. Using the 7 criteria below, you can determine if your indicator is truly Key, or just another gauge on a dashboard somewhere.
1: Domino effect
A bad KPI score causes a domino effect of problems. Things like re-planning, rework, waste, complaints, fines, reputation damage, extra costs, etc. Look at the parts of your organization where the biggest problems can happen, then examine the root cause of the problems. If there’s no data (or not enough data) for the biggest possible problem, look at the next biggest problem, and so on.
For example, when it comes to airlines, planes arriving late causes lots of problems. The airline might be fined, the baggage handlers’ schedules are disrupted, customers are dissatisfied, and employees are dissatisfied. So, for airlines, planes arriving on time is a genuine Key Performance Indicator.
2: Impact on profits
A bad score on a KPI always has a direct effect on the profitability of your organization. The words “always” and “direct” indicate a one-to-one relationship. The revenue can increase or decrease, but that doesn’t necessarily impact profitability one way or the other. Therefore, revenue isn’t a genuine KPI.
3: Impact on customers and employees
A KPI directly impacts employee or customer satisfaction, or both, in addition to directly impacting profitability. If it affects both, you have a very important KPI on your hands. The airline example mentioned above, for example.
4: Continuous improvement
Key performance indicators are mainly focused on improving the overall (existing) process. That will improve your results and enable you to optimize the process. They’re less suitable for finding and implementing product innovations. Continuous improvement goes hand-in-hand with Key Performance Indicators.
5: The key success factors
KPIs reveal the key success factors in your organization and make them measurable, so that the strategy and the business model are clear to every employee. This is relevant and important because at 78% of organizations, the majority of employees don’t know what their contribution to the strategy is.
6: KPIs are by definition not financial
The moment that you can express an indicator score in dollars or euros, one thing is certain: it’s not a genuine KPI. A KPI does have financial impact, of course, as mentioned above. But driving costs or revenue alone is not advisable.
7: KPIs can be influenced directly
The KPI scores can be directly influenced by employees in their everyday activities in the processes. For example, by adjusting their behavior, working differently, or adjusting systems. If employees can’t affect KPI scores, it makes little sense to hold them accountable for them.
Learn more about Key Performance Indicators
Are you interested in defining and applying genuine Key Performance Indicators in your organization? Find out what the requirements for KPIs are. Contact us for more information, or take a look at our SMART KPI Toolbox, which will help you determine the right KPI requirements for your organization.