Is Our Measurement of KPIs Outdated?

Is Our Measurement of KPIs Outdated? 1

How do you tell if your business is performing well? You measure it.

Sounds simple, right? Well, in theory, yes. In practice, it’s a little more difficult. For starters, how are you going to measure your business’ performance? What are you going to measure? How do you decide what constitutes sound performance? Is it revenue? Client retention? Profitability?

All of a sudden, what seems like a simple question becomes infinitely more complicated.

Despite this, there’s one thing that’s absolutely for sure: the way you choose to measure business performance needs to be tailored to your business, current, actionable. This is where KPIs come in.

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What are KPIs?

Key performance indicators are measurable values that demonstrate how effective a business is at meeting its objectives. They are used across different areas of the business. For instance, a KPI can measure employee performance or business revenue growth.

Once values are set, businesses can create clear actions to ensure operational efficiency. Remember that KPIs are only as valuable as the actions they inspire. All too often, businesses adopt industry-recognized key performance indicators that do not reflect their own operations. What happens then? Not one single KPI affects any positive commercial change.

Each KPI should be a short, clear statement that sets out what you want to change or improve in your business – with a deadline for it to be completed. High-level KPIs may focus on important areas of the business, such as revenue and profit. Low-level Key Performance Indicators may well focus on lesser areas, like employee retention or marketing.

So, an example of a high-level KPI could be:

Increase the number of return customers to 1,000 by May 2021.

Whereas an example of a low-level KPI could be:

Increase the number of Instagram followers by 20 every month for the next 6 months. 

How do you define KPIs?

Defining a KPI can be a bit of a challenge. Every single one must relate to a specific business outcome and be able to be measurable. KPIs are often confused with business metrics which are quantifiable measures that are used to track and assess the status of a specific business process.

It really all boils down to context. But, in simple terms, the difference between key performance indicators and business metrics is as follows:

  • Business metrics are used to track all areas of the business
  • Key performance indicators are used to track critical areas of performance

So, for example, a key performance indicator could be monitoring how website traffic contributed to sales forecasts. A business metric would monitor website traffic and compare the data to business goals. It’s all about the specifics.

A KPI is always defined using critical or core business, department, or employee, etc. objectives. To do this you’ll need to ask yourself a few questions like:

  • What is the outcome you want?
  • Why does the outcome matter?
  • How will you measure progress?
  • How will the outcome be influenced?
  • When will you know that you’ve achieved the outcome?
  • How do you plan on reviewing all progress to the outcome?

What are SMART Key Performance Indicators?

With us so far? Good. Let’s move onto something a mite more complex – SMART key performance indicators.

If you want to go one step further to gain deeper insight into business objectives, targets, and goals, you can set SMART key performance indicators. As we’ve already mentioned, key performance indicators are only as valuable as the action they inspire and for businesses to gain deeper value from the insight gleaned from critical areas of performance. Sometimes great insight is needed. That’s where SMART key performance indicators come in.

A SMART KPI Has the Following Attributes

  • Specific – they clearly explain why a certain KPI is used and what it measures, focusing on the department or individual and exact actions.
  • Measurable – they can be measured based on clearly defined behaviour which can be evaluated, with outcomes able to be compared to the actual target
  • Achievable – they should be realistic and able to be readily attained
  • Relevant – they must be essential to the function(s) of employees’ role or the department. There must also be a direct business effect to each.
  • Timely – they will be able to be measured and adjusted in an appropriate amount of time. Should a business’ objectives and goals change over time any KPI will need to reflect the change(s).

Is our measurement of KPIs outdated?

One of the more pressing questions that businesses have been asking themselves in recent years is whether performance measuring through KPIs is outdated? Have we reached a stage where big data, analytics, and AI have stripped any KPI of their value?

Let’s examine this.

So, there are several different attributes that will help us to determine if measuring key performance indicators is now a trend that’s run its course. To determine if key performance indicators are just trends that are on the verge of being obsolete, let’s look at what characteristics define a trend.

Transitory

Trends don’t last forever. In many cases they’re here one day, gone the next. Think, when was the last time you slept on a water bed or sat for hours in a bean bag chair?

Businesses will always need to set, measure, and analyse performance. How else are they going to optimize efficiency or provide a better service to their clients?

Impermanent

A good KPI challenges the fundamental way that something is done. It is not a repackaged version of the same thing. It has distinct value, is comprehensive yet focused and eliminates any common struggles.

None of these are attributes of something impermanent. Key performance indicators won’t be here one day, gone the next. They have and will continue to evolve to meet business needs.

Adaptive

Now, key performance indicators can and, perhaps, should become adaptive to different individuals and circumstances. But their core purpose remains the same: to provide businesses with a measurable performance value. They are, in this case, fixed.

Their purpose will remain the same. It will persist, and so will their influence on business operations.

Remember to keep an eye on your KPIs and compare them to performance

The bottom line is this: if your key performance indicators are providing underwhelming value, it could be time to reassess them. Remember, businesses, markets, products, and services evolve over time. To remain competitive, you must consider changing, streamlining, or honing your key performance indicators.

Do this and you’ll achieve continued, deep insight into business operations and make the right decisions to secure a prosperous future.

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