Types of Key Performance Indicators (KPIs)

Many times at MPOWR when working with new customers we are asked what is a Key Performance Indicator (KPI) and when should we use it? Below we’re going to help answer those questions.

What is a Key Performance Indicator?

If you Google the definition of Key Performance Indicator, you will find “a quantifiable measure used to evaluate the success of an organization, employee, etc. in meeting objectives for performance.” KPIs are an integral part of strategy execution and measure the failures and success of your strategies and objectives. KPIs provide a measure of the target states of your strategy against actual quantifiable data over a period of time. KPIs can provide creativity in allowing your organization to execute their plan, what do I mean when I say that? I mean that it provides a measure of success to work towards but doesn’t define how you or your team should work towards it, it allows your managers on the front line in the trenches to act on their own initiative and feel connected to the overall success of your organization. It opens the door for creative execution and in today’s agile world creativity and flexibility can be critical success factors. This does not mean they are unclear and ill-defined, a KPI still must be quantifiable, actionable, and aligned with your vision, mission, and values.

Ensure accountability through ownership

Who is going to own the KPI, because if everyone owns it, no one owns it? Someone should be held accountable and responsible for executing and taking action on the KPI and its results. This is why MPOWR requires you to assign one owner to every KPI. The owner will then be notified through push notifications and email that the KPI requires an update.

What is the difference between high-level and low-level KPIs?

Depending on the level of a strategic plan you are working on or maybe the level of your position inside of an organization will dictate how you interact, measure, and monitor Key Performance Indicators. At MPOWR we like to think of these as Global vs Plan KPIs.

Global: KPIs at this level is about monitoring the progress and execution towards your plan’s overall target state. Global KPIs are typically more long-term and are aligned with your Vision, Mission, and Values and measured on a Monthly, Quarterly, or Annual frequency. These are usually very important to Board Members and Executives.

Plan: KPIs at this level is about monitoring the processes and activities that support your plan’s strategies and objectives. They are more short-term in nature and are measured on a Weekly, Monthly, or Quarterly frequency. They provide awareness into what processes and methods are working or not working well. They provide more immediate feedback to allow you to notice something is wrong and take action to get things back on track or maybe change direction. These are usually owned by Directors, Managers, and Associates.

A simple way to think about the difference is your Plan provides where you want to go, Global KPIs are your navigation instrument or compass. They provide you the general direction you need to go. Plan KPIs are like real-time traffic updates that provide information on traffic, accidents, or detours on your journey, they allow you to make adjustments in real-time while still traveling towards your end destination. An easy-to-understand example in many organizations is a Customer Service strategy. When creating your Vision, Mission, and Values there is typically a component of customer happiness and success. Usually, an outstanding customer experience creates a more loyal customer base who buy from you more often and refer other customers your way. Here is an easy to understand example of what KPIs at the Global and Plan level could be implemented:

Global KPI: Grow Customer Satisfaction by measuring Net Promoter Score (NPS). Maybe today your NPS score is a 4 and you want to grow it to a 9 as part of your three year strategic plan. This ties back to your Vision, Mission, and Values.

Plan KPI: First Response Time, Average Time to Resolution, First Contact Resolved Rate. These KPIs are more operational and process-orientated but by setting targets and working on improving these. These would be part of your customer service strategy and objectives and are aligned with your Mission, Vision, and Values.

KPIs are not just measurements

KPIs are not just about entering data to see if something is red, yellow, or green. They are about what actions you are going to take to get the KPI back into the green or maintain your success. In order to successfully use KPIs, you need to be thoughtful in analyzing the results. It is not just about looking at a KPI dashboard and seeing the health of a KPI, it’s about entering a progress note with your KPI data. KPIs need context to be productive, they explain not just what you are measuring but why you are measuring it and what actions you are going to execute to improve your performance. Measurements can give you insight, but with deeper analysis and action you will find your plan execution being successful more times than not.

KPIs can be leading or lagging, what is the difference?

I like to consider leading indicators as inputs, the things you are doing on the front end of a process to work towards success. Just as the name insinuates, a leading indicator leads to results, they are sometimes difficult to measure but easy to improve. Lagging indicators are the results or outputs. They are easy to measure but can be difficult to see short-term improvements. Let’s take a look at a common real-life example. Weight loss is something the majority of us want to improve. When we think about leading indicators when working towards losing weight, the leading indicators or inputs could be the number of calories taken in, amount of calories burned, the number of trips to the gym each week, how many miles walked just to name a few. They are the things you need to do in order to improve your results. A few examples of lagging indicators are overall weight, the number of pounds lost, body mass index. By setting and following the targets on your leading indicators should help you reach your targets for your lagging indicators. Almost think about it as a cause and effect relationship, by doing X, I will achieve Y.

Are KPIs always a single input?

Sometimes measuring a KPI might be as simple as counting a single number, currency, or percentage but there are times when a KPI is more complex than that. We like to call these “Advanced Calculations” where a KPI might be the output or result of taking 2 or more KPIs and performing an operation with them. These can come in the form of ratios, averages, or adding the results of KPIs together.

Recap

Key Performance Indicators are not only a vehicle to measure your execution they are also a vehicle of communication when you analyze your performance and take immediate action when necessary. KPIs can be the difference between successful strategy execution or failure to identify problem areas and pivot before your over plan completely fails. Having both Plan and Global KPIs allows an organization to measure and monitor its execution in both a short-term and long-term lens.