The growth and ultimate success of your company will be determined by the consistency of results. And those results can only be achieved if your team consistently meets desired goals and targets.
What Is a KPI?
A KPI (key performance indicator) is a quantifiable measure that can be used to determine how well company goals are being met. Managers can set out a number of KPI’s for a project that they can use to identify how well individual employees are performing.
For example, if you’re a tech company that evaluates search engine results, you may set specific KPI’s within your guidelines that act as “mini targets” for your employees to reach. Let’s say your client wants you to report the most accurate landing page analyses by determining which pages are most relevant to a user’s search engine query. Your KPI’s could include the following requirements:
- Employees must produce 90% accurate results, daily
- Employees must get through 1,500 landing pages a week
- Employees must only report a maximum of three “completely incorrect” ratings a week
These KPI’s will allow you to accurately assess which employees’ performances are of an expected standard.
You can define and set KPI’s that integrate with your company’s own strategy. There’s no specific way of constructing KPI’s, but they should be quantitative, practical, and directional (to determine if the company is heading in the right direction).
Why Are KPI’s Important?
From reviewing employee performances to tracking company progress, there are a number of reasons why KPI’s are an important factor in assisting your company’s growth.
1. You Can Measure Your Targets
Though they may be easily confused, KPI’s are not company goals or targets themselves, but they’re a measurement of goals and targets. For instance, if your company goal is to sell a certain amount of high ticket products each month, your KPI’s will show you how close or far you are from reaching those targets.
A KPI in this instance may indicate that your sales team is only generating 20% of the desired amount of leads your company has set as a benchmark. As a manager in this situation, you are instantly made aware of your sales team’s progress and the reason for not hitting the desired numbers of leads.
When you’re able to measure your goals this way, it gives you the opportunity to see where you’re going wrong and subsequently make decisions that help you reach your goals faster.
This is arguably the most important reason why KPI’s should be used and the most significant usage of a KPI.
2. Create an Atmosphere of Learning
Being able to measure targets using KPI’s can create an educative atmosphere within your company. According to Root Cause, the data that is generated by measuring KPI’s leads to important conversations within the workplace.
When you notice an unfavourable reading on a KPI, you have the chance to talk to the individual or team involved with that specific KPI. This a great opportunity for you to teach the employees how to do things differently and perform better in order to reach set targets.
Additionally, you can analyse whether the set KPI’s are an effective measurement, and conversely, make necessary modifications if the employee feels that the targets are unrealistic to meet.
3. Receive Important Information
KPI’s provide an immediate snapshot of the overall performance of your company. When you’re in a highly competitive market, that information can be a crucial part of your attempts to “beat” your competition.
The real-time data that KPI’s provide allow you to make systematic adjustments so that you’re not left making frantic changes at the end of each month to reach your goals.
Some companies use KPI’s to measure how well they are reaching certain standards that may not be directly related to their business or profits. For instance, protecting the environment may be a priority for your business and this may be something that helps to enhance your company’s reputation amidst growing political pressure. In order to show that you’re taking the matter seriously, you could disclose your KPI’s on your website, much like the global pharmaceutical company, Pfizer.
On its official website, Pfizer claims that it’s committed to enhancing its safety and environmental performance, as well as being transparent through reporting. Pfizer states that it will accomplish this by measuring its performance, setting progress targets, and publicly disclosing its efforts. They conclude:
“We use key performance indicators (KPIs) to measure and externally report our global performance. Our strong focus on measuring and monitoring EHS (environment, health and safety) performance data enables us to highlight successes and identify program areas for continuous improvement.”
Here you see that the monitoring of KPI’s gives Pfizer important information for them to evaluate their progress.
4. Encourage Accountability
Without KPI’s revealing vital statistics about performance, you run the risk of making inaccurate decisions about employees during reviews. You may assume that an employee is performing poorly because he/she has punctuality issues or a perceived lack of company engagement, but you have no quantifiable proof. A KPI may reveal that your assessment is incorrect and the perceived “poor performer” may have some favourable stats and delivers good results.
On the contrary, poorly performing employees can hardly argue their case if their KPI stats show unfavourable readings.
Essentially, KPI’s encourage accountability for both employees (if they’re not performing) and employers (if KPI’s are deemed unreachable).
5. Boost Morale
Employee motivation and job satisfaction are extremely important in order to improve company performance and culture. It can often be difficult to motivate your team when set targets can only be achieved once a quarter or once a year.
It can be quite rewarding and motivating for employees to receive positive reports for meeting certain KPI’s in the interim. The results are often instant. It creates a sense of purpose and keeps them focused on meeting their goals.
Viewpoint Construction Software reinforces this point by emphasizing the importance of an effective KPI strategy toward employee satisfaction. They report that if you were to take a professional, industry-accepted survey of your company’s employees, you’ll likely find that most supervisors are only utilizing about 60% of their team’s capability. That’s a damning stat for most motivated leaders.
A good KPI system will increase that number by keeping your leadership abreast of their team’s performance. They could use this information to document employee’s actions and progress, discuss their findings, provide feedback, and ultimately increase job satisfaction as forthcoming targets are met.
Although KPI’s are important for reaching company goals (and inevitably growth) by allowing you to make systematic, timely adjustments, you must ensure that those goals have the potential for you to create actionable KPI’s based on them.
For example, if you tell your workforce that your goal for the year is to see an increase in retaining customers, you’ll find it difficult to create KPI’s that lead to actionable steps because the goal is not easily measurable.
You could modify the goal slightly by demanding an increase in customer retention by 20%. You now have a quantifiable and measurable target which allows you to create the appropriate KPI’s.
Always establish specific goals which allow you to create the necessary KPI’s in order to improve the overall results of your business.