For many, it is a totally unknown word, unless you are involved in the area of digital marketing indicators. Actually, the definition of KPI is simple – it is the acronym for Key Performance Indicator.
We can say that KPI is the measure that allows companies to evaluate the performance of a particular section. We also talk about metrics, even if there is a notable difference between these two terms.
What are the objectives of the performance indicators?
KPIs are closely linked to a specific objective. For example, in marketing and quality, they can refer to the satisfaction rate of the target customer. In that case, KPIs are known as qualitative management indicators.
Decision-makers use them to ensure the achievement of strategic and operational objectives within an organization.
The metric, unlike the KPI, expresses the gross quantitative value of a variable or parameter. A clear example is a number of visitors to a website or the number of hours worked. A metric becomes a KPI if it is connected to a target value.
With a small nuance, performance is usually related to efficiency. That is, with the achievement of a goal. It can also be a measure of efficiency, to make the most of available resources.
These terms are of strict Anglo-Saxon origin, which made their appearance worldwide with digital marketing tools such as analysis, reports, business intelligence, and web analysis consistent with the rise of electronic commerce.
How to use key management or performance indicators?
These measures include instrument panels, tools to facilitate monitoring and decision support. Therefore, each person accesses the management data that is essential to control their specific activity.
At the highest level, KPIs are added and integrated into the strategic management of the company, facilitating the identification of areas of low performance and the activation of an action plan.
If we apply the use of KPIs in benchmarking, the key performance indicators facilitate comparison with competitors to facilitate comparative evaluation studies.
If we specialize in the area of marketing and sales, the application of key performance indicators can inform us about a high percentage of loyal customers, a satisfaction index, a clear percentage of market penetration, as well as a percentage of increase in billing and also excellent profitability per customer.
Similarly, if we use KPI especially for the digital field, we will obtain the bounce rate of a website, the percentage of new visitors, the average duration of visits, conversion rates for an email campaign and The average amount of the cart.
In the area of finance, they offer us a return on investment or ROI, as it is also known, and a sustainable return on equity, as well as a growth rate.
A clear example of KPI in HR or Human Resources, as is more commonly known, is that they can grant us the billing percentage with respect to production.
This can be a low percentage of staff absenteeism, an excellent percentage of employee satisfaction or an increase in the percentage of employees trained within the company.
In the logistics area, KPIs report the stock breakage rate, as well as a service fee and a deadline for the delivery of products.
How to choose a performance indicator?
A good performance indicator has to respond to specific characteristics. This will ensure that the proposed KPIs of the team members, when appropriate, maximize each of these six criteria before being selected for display in a relevant report.
A performance indicator is necessarily linked to the objective pursued. It also depends closely on the specific context of the activity you intend to guide. Of course, a performance indicator is essential for those in charge of conducting the actions.
The 6 criteria to consider with KPIs are the following:
Who is it aimed at?The indicator measures the objective to follow. This statement seems obvious and it is. However, in the real-life of the company, sometimes we find panels composed of performance indicators that have nothing to do with the relevant performance objectives.
This is what happens when we imagine that it is enough to draw them in lists by profession because they abound on the web and it is a big mistake to make such an assumption.
Is it measurable?It should not be too difficult to measure and its calculation must be relatively simple. Any user of the indicator needs to know exactly how it is built and why it is built this way.
To make decisions based on a performance indicator, one must necessarily have confidence in the information provided and trust is gained with knowledge.
Is it ‘fresh’ or recent? KPIs should always be updated on time. That is, at the time of use the data is updated. However, this does not mean that it is essential to accelerate all cycles. For example, the information in the quarterly report is published every three months.
Does it have an acceptable cost?The construction of the data collection infrastructure through applications can be more expensive than it seems and depends on how customized it is to our needs. The more generic – the less expensive. The more adapted you want it to be to very specific processes of your company – the more expensive it comes out. In addition, if you want the introduction of information to be automated, that usually means an extra outlay, although depending on what can lead a person to enter all the data manually, the cost can be compensated quite quickly.
Is the KPI legit?Here too the statement seems obvious. However, in the real-life of the company, it happens that the decision-maker can doubt the reliability of the data used to build the performance indicator that of course, he will not use if that is the case. If one bumps into an unusual KPI, it is good business practice to verify that the break-up is not due to an error.
A management indicator can be reliable for the one who created it and doubtful for those who will have to use it. Whoever is going to use it probably won’t until the doubts have been clarified.
Is the indicator of decisive performance? We are not happy with a simple observation that does not lead to any idea of action and a management indicator should help decision making. Although this decision may be ‘do nothing’, it is still a decision.