What is a key performance indicator (KPI)?

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 organizations are those that are dedicated to insightful analysis of their own performance. 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 organization.

To understand the impact of key performance indicators, you should first understand several key elements and takeaways associated with KPIs.

KPIs measure success

KPIs help evaluate strategic, financial, and operational achievements for a business or organization. To provide a sense of context, KPIs are often generated using markers taken from other companies in the same sector.

KPIs must be quantifiable

To provide any real value, KPIs must be measurable. Unquantifiable factors may play a role in business success, but because they are impossible to accurately measure, they should not be included in KPIs.

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.

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 organizations evaluate which metrics to focus on as vital performance indicators.

Specific

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 goals 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 organization and deliver better business outcomes and customer value.

Measurable

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.

Attainable

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.

Relevant

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.

Time bound

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.

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 organization 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 organization 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.

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.

Inputs

Input KPIs measure the amount, quality, type, etc. of resources used to produce outputs.

Processes

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.

Outputs

Output KPIs measure work completed and/or products produced.

Outcomes

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.

The right KPIs provide your business with a clear path to success. But they also do more than that.

Anticipate trends

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.

Benefits of performance indicators

Prioritize resources

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.

Improve employee engagement

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.

Maximize automation and self-service

A more-accurate view of processes helps organizations identify areas where automation and self-service options could be implemented to improve efficiency.

Guide continual improvement

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.

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 optimizing successful service delivery.

Built on the Now Platform, Performance Analytics delivers a process optimization 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. Prioritization 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.

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