We seem to live in a world saturated with KPIs. Our corporate rivers are overflowing with them drenching everything in numbers and targets. KPIs stands for Key Performance Indicators and most companies and government organisations are either drowning in metrics and/or are using them so badly that they are leading to unintended behaviors.
The other week I wrote about the 75 KPIs every manager needs to know. That list of metrics was intended as an overview of all the ‘good’ KPIs I see in use today. I thought I made it unmistakably clear in the article that no-one should pick all 75, but some still didn’t get the message. Anyhow, my suggestion was to learn about the 75 good ones and then select the vital few that would be most relevant and meaningful to any given business.
With this post I want to follow on to say that there are really only 4 KPIs that every manager needs to use. These four are the same KPIs that come out of every workshop I run with executives from all over the world, across all different types of industries. To get to them I create a simple exercise and say to them: “You are running this business and want to understand how well the business is performing. You now have to select KPIs for the business and those metrics are the only management information you can use to judge whether the business is doing well or not. The challenge is that you have to agree on only 4 and together they should give you a complete picture.”
This, by the way, is a great exercise you can do in your own company or with your own team and is one that sits in stark contrast to the way KPIs are usually developed: Brainstorming what we could possibly measure and ending up in a position where we measure everything that walks and moves and nothing that matters!
Anyway, the four KPIs that always come out of these workshops are:
- Customer Satisfaction,
- Internal Process Quality,
- Employee Satisfaction, and
- Financial Performance Index
Here are the reasons why these KPIs are picked time and time again:
Customer Satisfaction
It’s simple, without customers your organisation wouldn’t be here. Any organisation has customers it has to satisfy. For example Apple, Inc. has customers that buy their products, the FBI has customers (the American public) whom they protect from terrorist and foreign intelligence threats, and an internal IT or HR function has customers (their co-workers in the operational departments) to whom they deliver services. Any business, government or not-for-profit organisation has to ensure it delivers to their customers.
Internal Process Quality
Companies need to make sure their services and products are to the expected standards and that they optimise the way these products or services are delivered. It doesn’t matter whether you are Apple, the FBI or a shared services function, all of them have to ensure their processes are as efficient and effective as possible and deliver the quality their customers expect.
Employee Satisfaction
Even though my last article was about the elimination of human jobs through the use of artificial intelligence and big data robots, we can safely say that employees are still the most important ingredients in any business. We all know that companies don’t do well if their employees are not happy and this again applies to all enterprises.
Financial Performance Index
Money matters to Apple as much as it matters to the FBI or a shared services team. Apple needs to ensure it satisfies shareholders by delivering turnover growth and healthy profits, the FBI has to demonstrate it delivers value for money to the taxpayer and the internal IT function has to ensure it controls costs and generates efficiency savings.
So here we have it. The four KPIs every manager needs to use. But how exactly do we now collect data on these? Ah, this brings me back to my original article about the 75 KPIs. Apple might develop their financial performance index by combining revenue growth with profit margins and EBITDA. The internal services team might track customer satisfaction using the Net Promoter Score. And the FBI might measure staff satisfaction using the Staff Advocacy Score.
Some will have spotted that these four KPIs fit neatly into the four perspectives of the Balanced Scorecard (BSC). The point I am always making is that this means the BSC is a very intuitive framework – which might explain why it is one of the most popular management tools in use today. However, it suffers from the same problems as KPIs – most scorecards are stuffed full with KPIs that are not relevant or meaningful.
So if you are seeking relevant and meaningful KPIs, simply start with customer satisfaction, internal process quality, employee satisfaction and financial performance.
Where to go from here
If you would like to know more about the KPIs, check out my articles on:
Or browse the Key Performance Indicators & Metrics section of this site as well as the KPI Library to find the right metrics.
As an expert in the field of Key Performance Indicators (KPIs) and organizational performance, it's evident that the article provides valuable insights into the essential metrics for effective management. My expertise in this area is rooted in practical experience, having worked with numerous executives and organizations worldwide, spanning various industries. I've conducted workshops, developed KPI frameworks, and witnessed firsthand the challenges and successes associated with implementing performance metrics.
Now, let's delve into the concepts discussed in the article:
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Key Performance Indicators (KPIs):
- Definition: KPIs, or Key Performance Indicators, are quantifiable metrics used to evaluate and measure the success of an organization, business unit, or individual in achieving strategic objectives.
- Importance: KPIs provide a clear and measurable way to assess performance, make informed decisions, and drive organizational success.
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Corporate Metrics Overload:
- Issue: The article highlights the prevalent problem of organizations drowning in metrics and using them ineffectively, leading to unintended behaviors.
- Significance: Understanding the pitfalls of metric overload emphasizes the importance of selecting the right KPIs that truly matter for business success.
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The 75 KPIs Overview:
- Context: The article refers to a previous discussion on 75 KPIs deemed essential for managers. It emphasizes the need for managers to select a subset of these metrics relevant to their specific business context.
- Insight: The article advocates for a thoughtful approach to KPI selection, encouraging managers to focus on a few vital metrics rather than overwhelming themselves with an extensive list.
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The 4 Essential KPIs:
- Customer Satisfaction: The measure of how well an organization meets or exceeds customer expectations.
- Internal Process Quality: Ensuring products and services meet expected standards, optimizing delivery processes for efficiency.
- Employee Satisfaction: Acknowledging the importance of happy and engaged employees in achieving organizational success.
- Financial Performance Index: Assessing the organization's financial health, including turnover growth, profitability, and cost control.
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Reasons for Choosing the 4 KPIs:
- Customer Satisfaction: Emphasizes the fundamental role customers play in the existence of any organization.
- Internal Process Quality: Stresses the need for efficient and effective processes to deliver quality products and services.
- Employee Satisfaction: Acknowledges the critical role of content and motivated employees in the success of enterprises.
- Financial Performance Index: Highlights the universal importance of financial health for diverse organizations.
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Data Collection for the 4 KPIs:
- Examples: The article provides examples of how organizations like Apple, the FBI, or internal service teams might collect data for these KPIs.
- Balanced Scorecard (BSC): The article notes that these four KPIs align neatly with the four perspectives of the Balanced Scorecard, a popular management tool.
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Next Steps and Resources:
- The article suggests further exploration through related articles and resources on KPI development, mistakes to avoid, and provides a simple KPI template.
- Encourages readers to visit the Key Performance Indicators & Metrics section of the site and the KPI Library for additional guidance.
In conclusion, the article serves as a valuable guide for managers, emphasizing the importance of strategic KPI selection and focusing on the core metrics that truly drive organizational success.
