Key performance indicators (KPIs) are measurable, quantifiable assessments of a company’s performance, generally used in comparison to competitors.
Business success does not come at random; it is the end-result of ongoing improvement and informed goal setting. As such, successful organisations are those that are dedicated to insightful analysis of their own performance.
When it comes to measuring performance and tracking progress, the word ‘metrics’ is often used interchangeably with KPI. But while these terms are certainly interrelated, there are distinct differences between the two.
Metrics refer to the quantifiable measures used to assess various aspects of a business or project. They can include raw data points, such as the number of sales, website visits or customer satisfaction ratings. Metrics provide objective information and are often used to monitor and analyse performance. However, metrics alone do not necessarily indicate the strategic significance or alignment with organisational goals.
KPIs have more strategic relevance and are tied directly to the success of a specific objective. These measurements are carefully selected to provide meaningful insights into performance against predefined goals that apply across teams and departments. They act as high-level indicators of progress and are often used to evaluate the effectiveness of business strategies, aligned with the organisation’s mission, vision and long-term objectives.
In other words, while metrics encompass a wide range of measurable data points, KPIs are a targeted selection of metrics that have strategic significance. KPIs provide a focused view of performance and act as a compass to guide decision-making and goal setting.
KPIs help keep business objectives as the central focus in all relevant decisions, while also promoting ownership and accountability across all levels and departments. KPIs are vital to the health and success of any organisation.
Not all relevant metrics make appropriate KPIs. For a KPI to be valuable, it should follow the SMART criteria. SMART is an acronym that stands for Specific, Measurable, Attainable, Relevant and Time-bound. SMART helps organisations evaluate which metrics to focus on as vital performance indicators.
KPIs depend on accurate measurement, and that means that the goals they focus on need to be highly specific. Avoid KPIs that consist only of “improve business” or “increase customer success.” Specific metrics help ensure that everyone involved is on the same page and make it easier to identify and measure the steps that will help you align the organisation and deliver better business outcomes and customer value.
KPIs detail progress towards goals; if that progress can’t be measured, then the KPI simply is not effective. Measurable KPIs also help determine what actions contribute towards achieving objectives and make it possible to evaluate and report on performance.
While there may be value in occasionally shooting for the stars, unattainable goals can waste time and may also discourage employees who are putting in their best effort. KPIs should be aggressive, pushing teams towards new heights, but they should also be realistic—otherwise, the KPIs will only set your company up for failure.
KPIs should relate to the goals that matter to your business. Don’t waste time or effort tracking indicators that don’t contribute to success and be willing to revisit established KPIs to evaluate relevance. The ability to dynamically shift focus to better align with current strategies and objectives will help you keep your teams progressing toward your vital objectives.
Deadlines can be stressful, but they are an absolute necessity in creating effective KPIs. Without an established timeframe, there is little urgency for teams to continue pushing forward. At the same time, KPI timelines need to be adjustable to meet changing objectives and to take into account unanticipated variables and emergent situations.
When setting KPIs, there are several other considerations to keep in mind to ensure effectiveness and relevance. These considerations include:
Alignment is one of the major factors that set KPIs apart from more traditional metrics. KPIs must align with the organisation’s strategic objectives and priorities, serving as reflections of the overall mission and vision of the company. This ensures that resources and efforts are directed towards what truly matters for the organisation’s success.
KPIs should be actionable, driving progress and facilitating decision-making. They should provide insights that empower stakeholders to take specific actions aimed at improving performance or addressing areas of concern. KPIs go beyond mere measurement by enabling proactive responses.
Because KPIs are so central to strategy, they should be easily understood by all relevant stakeholders at all levels. Effective communication is crucial, and KPIs should be presented in a format that is accessible and meaningful to every intended audience. This ensures that everyone comprehends the significance of the KPIs and can actively contribute to their achievement.
Although it may go without saying, it’s worth noting that KPIs should be based on accurate and reliable data sources. The data used for these measurement must be reliable—consistent, valid and trustworthy, thus upholding the integrity of the KPIs. Establishing robust data collection processes and implementing quality control measures are essential to help minimise errors.
KPIs are measurements, and as such they should enable meaningful comparisons over time, across departments or against industry benchmarks. This facilitates the evaluation of progress, identification of trends and understanding of performance relative to peers. By having a baseline for comparison, organisations gain valuable insights into their position and can identify areas for improvement.
KPIs may be categorised in various ways, depending on their purpose and scope within an organisation. Understanding the different types of KPIs helps in selecting the most relevant indicators for measuring performance. Here are some common categories of KPIs:
Strategic KPIs primarily assess the overall performance of an organisation in achieving its long-term strategic objectives. These indicators provide insights into the organisation’s progress towards its mission and vision, guide high-level decision-making and help monitor the effectiveness of the organisation’s various initiatives. Examples of strategic KPIs may include market share, revenue growth, customer lifetime value or brand recognition.
Functional KPIs are specific to different departments or functions within an organisation (such as sales, marketing, finance or customer service). These indicators measure the performance and effectiveness of individual departments in contributing to the overall organisational goals while also providing insights into departmental efficiency. Examples of functional KPIs may include customer acquisition rate, return on marketing investment (ROMI), accounts receivable turnover and customer satisfaction scores.
Operational KPIs focus on measuring and managing day-to-day operational performance and are closely tied to the activities and processes within an organisation. These KPIs are more granular and actionable, guiding frontline employees and supervisors in their day-to-day tasks. This helps organisations more accurately track performance at the operational level and identify areas for improvement. Examples of operational KPIs may include production cycle time, on-time delivery rate, inventory turnover or employee productivity
KPIs can also be categorised as leading or lagging indicators. Leading KPIs are forward-looking and predictive, providing insights into future performance, helping identify trends and patterns that can influence the achievement of desired outcomes. Examples of leading KPIs may include website traffic growth, lead conversion rate or employee training hours. On the other hand, lagging KPIs are retrospective, measuring past performance and outcomes. They provide a historical perspective and can include metrics like revenue, profit margin or customer churn rate.
KPIs can be further categorised as qualitative or quantitative indicators. Quantitative KPIs are numerical and measurable, providing objective data for analysis. Examples of quantitative KPIs may include sales revenue, customer retention rate or average response time. Qualitative KPIs are descriptive and subjective, relying on observations and perceptions, assessing factors like customer satisfaction, employee engagement or brand reputation. Qualitative KPIs often require surveys, interviews or sentiment analysis to gather data.
Within the SMART criteria, KPIs can cover essentially any processes or goals across any industry. That said, KPIs tend to fall into one of four different categories.
Input KPIs measure the amount, quality and type etc. of resources used to produce outputs.
Process-focused KPIs are those that relate to the actions or tasks that go into producing a specific output. These may also include process controls, such as process training and tools or equipment.
Output KPIs measure work completed and/or products produced.
Further distinguished as either intermediate outcomes (outcomes that must occur to achieve end goals) or end outcomes (highest-level objectives), these KPIs focus on what has been accomplished and what sort of impact is being made. It’s worth noting that the market is currently shifting in what is considered the best approach to measuring outcomes.
KPIs play a crucial role in driving business growth, giving organisations of all kinds the insights they need to assess progress and align departments towards common goals. Here, we explore the ways in which different types of KPIs impact specify areas of business:
Financial KPIs directly impact the financial health and performance of a business. These KPIs assist in assessing profitability, efficiency and overall financial stability, guiding financial decision-making, aiding in budgeting and providing insights into the organisation’s financial goals and performance targets.
Examples of financial KPIs include:
- Operating expense ratio
- Working capital ratio
- Liquidity ratios
- Profitability ratios
- Solvency ratios
- Turnover ratios
As previously addressed, operational KPIs impact the efficiency and effectiveness of day-to-day operations within a business. These KPIs help in optimising processes, identifying bottlenecks and improving productivity.
Examples of operational KPIs include:
- Production efficiency
- Total cycle time
- Throughput
- Error rate
- Quality rate
Customer KPIs describe those metrics that directly influence the customer experience. Customer KPIs help businesses understand customer preferences, measure customer loyalty and identify areas for improvement in products, services or support, ultimately empowering the business to drive revenue growth.
Examples of customer KPIs include:
- First contact resolution rate
- Most active support agents
- Cost per conversation
- Customer effort score
- Number of new ticket requests
- Number of resolved tickets
- Average response time
- Average resolution time
- Type of request
- Customer satisfaction rating
Employee KPIs are used to monitor and evaluate individual and team performance, align employee goals with organisational objectives, and support talent development and retention efforts. By setting and tracking employee KPIs, businesses can drive motivation, enhance productivity and foster a positive work culture.
Examples of employee KPIs include:
- Absenteeism rate
- Overtime hours worked
- Employee satisfaction
- Employee turnover rate
- Number of applicants
IT KPIs relate to the efficiency and effectiveness of an organisation’s technology infrastructure and systems, allowing for the evaluation of performance and reliability in IT systems while also guiding technology investments and ensuring the smooth operation of critical business processes. By monitoring IT KPIs, businesses can identify areas for improvement, mitigate risks and optimise technology resources to support overall business objectives.
Examples of IT KPIs include:
- Number of tickets/resolutions
- Number of developed features
- Count of critical bugs
- Back-up frequency
- Total Support Tickets
- Open Support Tickets
- Ticket Resolution Time
- Security Related Downtime
- IT Costs vs Revenue
- Reopened Tickets
The right KPIs provide your business with a clear path to success. But they also do more than that.
KPIs allow you to gain an ongoing view into the reality of your processes as you work towards your goals. This makes it possible to identify trends and to make course corrections where needed to avoid service bottlenecks.
Measuring and tracking progress brings with it a clearer understanding of where resources are most needed, and where they could be put to better use.
Effective KPIs bring employees together, ensuring that everyone is pulling in the same direction and provisioning clear insight into how individual performance affects company goals. This allows for a more fulfilling employee experience, improving employee engagement in the process.
A more accurate view of processes helps organisations identify areas where automation and self-service options could be implemented to improve efficiency.
KPIs are essential, not only in achieving established goals, but also in creating a culture of continuous improvement. Refine objectives, increase output, improve efficiency and ensure that everyone involved is working towards reaching and redefining company success.
KPIs include business and customer-focused metrics. KPIs may include, but are not limited to, financial, process-focused and customer-relevant metrics. KPIs are not always company wide. Individual departments, or even individual employees, may have their own KPIs. However, these KPIs must contribute to the company’s overall KPIs.
Because KPIs must be measurable, specific and relevant, they can be difficult to get down on paper in any amount of detail. When you are in the process of writing and developing your KPIs, consider the following steps:
1. Clearly identify your objective
The relationship between your goals and your KPIs is essential. As such, creating effective KPIs starts with a clear evaluation of how the KPI should relate to a specific objective or business outcome. KPIs need to be more than numbers and data; they should be a strategic expression of what your organisation is trying to accomplish—backed by numbers and data. All of this starts with writing out a clear goal or set of goals.
2. Get buy-in from all stakeholders
Without buy-in from everyone involved, a KPI is nothing more than words. Communicate your goals and what you plan to measure with all stakeholders and let them know exactly how performance and progress is to be measured. Field any questions stakeholders may have and be open to their ideas on how to improve your KPIs. If possible, thread your goals throughout the organisation to ensure complete alignment and understanding.
3. Regularly review and update KPIs
Set a regular cadence (such as weekly or monthly) to review and reevaluate KPIs. Remember, performance indicators should be dynamic; don’t stick with an established KPI if it no longer accurately represents what you are trying to achieve. Reviewing KPIs will not only allow you to track progress and performance but will also provide insight into how effectively you are selecting and developing your KPIs overall. If KPIs are no longer relevant, prove to be unattainable, or are simply not actionable or effective, then go back to the drawing board to revise and update them to be more in line with your objectives.
Effective KPI management can make or break a business. With this in mind, ServiceNow offers industry-leading Performance Analytics, providing the essential data and insights businesses need to build and track the KPIs necessary in optimising successful service delivery.
Built on the ServiceNow AI Platform, Performance Analytics delivers a process optimisation solution with unparalleled visibility into the important trends and metrics that matter most, displayed visually on easy-to-use dashboards. Built-in alerts identify and callout any anomalies, so that you can address issues before they can negatively impact performance. Prioritisation tools use business requirements to help teams determine what they should be focusing on. And, by integrating easily with a range of other tools and systems, Performance Analytics ensures that you always have the right insights into the data that really matters.