Defining KPI – Key Performance Indicators and Metrics
To define Key Performance Indicators (KPI), or metrics for a team, department, or organization, you have to first decide what to measure, then decide how to measure it. Sounds simple, but once you start down the path, you’ll find that the process can quickly become overwhelming. Or worse, a lot of work could be put into the wrong KPI.
Start with the strategic goals of the organization. These will be tied to the organization’s mission statement and short/mid and long term goals. If you are working at the department level, or the team level, the process is the same, as each unit should have it’s own specific goals that tie into the goals of the overall organization. If not, stop working on KPI and start working on business strategy and planning!
The business will identify initiatives that help achieve their mission. The metrics you define should plot performance against these goals.
Example: A product marketing team may have decided to turn their efforts to increasing profitability. They may have set a number of initiatives, including reduced cost of sales. Therefore, one KPI for the product marketing team will be the Length of Sales Cycle. This may be surprising, as it is the Sales team that is usually concerned with Sales Cycle.
The best types of measures are those that reflect true performance and are not lagging metrics – i.e. metrics that simply report what has already happened. Leading measures, as opposed to lagging measures, will indicate a trend of the end performance goal, and thus allow you to change behaviour (or keep on doing what you are doing, if things are good) with enough time to positively affect your lagging measures.
Example: If your overall goal as a mobile phone company is to capture 20% of the current market, you should start looking at your new customer capture metrics and customer drop off, or churn, as lagging measures. Leading measures might be related to customer satisfaction, new product availability, etc. Simple things such as measuring the average time it takes to resolve a customer complaint, or how many invoicing anomalies you have per invoicing run will help to correct churn.
Example2: If you are a marketing team tasked with reducing the length of sales cycle, a leading indicator would be the “average estimated time to close”. A lagging indicator would be the “length of sales cycle for deals that closed today”.
The KPI should not be handed down from above set in stone. The team itself should participate in their selection and definition — after all, they should be held accountable to performance against those KPI.
Once defined, KPI should be consolidated in a central location and this means a business intelligence solution. They should also be presented regularly so that they become part of the culture, and this requires reports and dashboards.
Derek Stobbart
Director of Technical Services – The BI Builders
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