The DNA of a #KPI (Key Performance Indicator) can vary in importance based on how an organization leverages it. In my opinion, there are no bad KPIs. So what allows a KPI to rise to the top of business behavior management? Properly developed KPIs can serve as building blocks for the strategic direction of the company. As I will show in this article, not all KPIs are created equally, but they do provide an excellent foundation for future management excellence.
Let’s start with some definitions that might help us evaluate the significance of a certain KPI. There are three groups to consider:
- Key Results Indicators (KRI)
- Performance Indicators (PI)
- Key Performance Indicators (KPI)
This is the second in our series What the … are KPIs?
Key Results Indicators
KRIs are data that you would share with your Board of Directors/Ownership. That would include Profit & Loss, Balance Sheet, Cash Flow, monthly statistical reports on headcount, customer growth rates, etc. The common DNA of these items is that they report the results of operation. Kaplan and Norton suggested in The Balanced Scorecard that there are approximately 20 KRIs.
In 1990, Carol T. Fitz-Gibbon defined PIs as “an item of information collected at regular intervals to track the performance of a system”. I prefer author David Parmenter’s simple yet effective definition ( in Key Performance Indicators ) in stating PIs “tell you what to do”.
An organization can have many indicators that tell them what to do. Generally, an organization will have 80 PIs. A sample of PIs includes the following:
|Financial||Customer||Internal||Learning & Growth|
|Gross Margin By Business||Clients producing top 20 profit||Actual delivery date versus promise||Length of service|
|Days sales in receivables||Customers lost||Sales or productivity per sq ft.||# of employees who have received recognition|
|% unprofitable clients||Direct communications to key clients||Billing accuracy||% of employees that interact with clients|
Key Performance Indicators
KPIs are about knowing the now. What can be measured daily that is not financial in nature that you can use to “save the day”. You can be the KPI super hero for your business or client if you identify these attributes. If you look at the 80+ PIs, some of those would be appropriate KPIs for the business. It is also recommended that there only be 10 KPIs, and they should be items you can measure daily and take action on a senior level.
So many choices, yet how do you narrow down to the top 10?
In the last column, I asked the readers to vote on which KPIs you thought were most important. Forty-four readers provided us their opinion as follows:
Let’s review the results together and use as a way to evaluate whether the item is a KPI, KI or KRI.
In my opinion, cash flow is a KRI. Something that you want to keep an eye on, but are dependent on other actions upstream that in effect determine the result of cash flow. In recent seminars that I had with over 30 CEOs, this was often cited as a KPI. But when we injected the rule that the KPI not be financial, it allowed the audience to focus on activities that drive action in an organization.
Qualified leads are something that I would consider a KPI. Well done! Clearly non-financial, yet you have the ability to control by picking up the phone and getting more leads qualified.
Operational efficiency can be a KPI. On-time percentage, process downtime, order fulfillment rate, call support wait times, etc.
Top 10 Products is something that can be measured daily. New orders, cancels, delivery times, profit margin all can be influenced by management.
Daily revenue goals are a KPI. If client count is down, how do you increase the average ticket price to meet the goal? Big box stores do it. So can your business.