Using Key Performance Indicators for Business Success

Key takeaways

Establishing key performance indicators (KPI) within your organization is an integral part of a successful business strategy.

• The four types of KPIs include quantitative, qualitative, input, and output KPIs.

• A good KPI is one that you can clearly define, communicate to your team, measure within a specified timeframe, and adjust when needed.

• You can utilize measurable KPIs to evaluate the overall health of your organization.

Uncover more about what makes KPI measures so important within organizations and how you can determine the right indicators for your team. Then, discover how Coursera for Business can help you create a skilled and adaptable company capable of harnessing emerging technology and succeeding through any change.

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What are key performance indicators (KPIs)?

KPIs are metrics that provide your teams with clear insights into which aspects of your organization are performing well and which ones need improvement. KPIs need to be measurable, allowing you to clearly understand whether you are hitting target values and how your metrics are trending over time. 

Within your organization, you can choose different types of KPIs to monitor different areas of operation. Generally, you’ll want a mix of high- and low-level KPIs. High-level KPIs focus on how your business performs overall, creating a big picture. Low-level KPIs, on the other hand, focus on smaller goals and performance tracking, often looking at processes within specific departments.

Read more: Key Performance Indicators Examples for Enhanced Business Performance

KPIs vs. metrics

While you might hear the terms ‘KPI’ and ‘metric’ used interchangeably, they have distinct meanings. A metric is simply a measurement of business activity, such as how many products you sold in a given year or how much of a project is completed on a certain date. 

However, while all KPIs are metrics, not all metrics are KPIs. For a metric to qualify as a KPI, it must be a targeted metric designed to help you understand how your progression or numbers align with strategic goals. 

Why KPIs are important in your business strategy

When you're trying to monitor and improve business performance, KPIs provide a data-driven way to look closely at each organizational department, objective, and employee to carefully analyze where you are excelling or falling short as a team. Implementing KPIs into your business strategy can help: 

• Align teams: You can use KPIs to align teams within your organization toward the same goal, ensuring the organization progresses in the direction intended.

• Emphasize learning behavior: By motivating employees to expand their skill set to meet new objectives, you can cultivate an environment of continuous growth and learning.

• Check the health of your organization: With measurable KPIs, nothing is left up to the imagination or guesswork. You can clearly see your organization’s current health and trends over time.

• Foster company growth: You can use KPIs to design new initiatives that drive company growth.  

• Hold teams accountable: Each team has clear indications of whether they are hitting their targets. This transparency helps maintain accountability within each department. 

• Track your progress toward goals: You can quickly see whether you are moving in a positive or negative direction toward each goal. Analyzing these trends gives you a better idea of where to focus your efforts or realign your teams.

Limitations of KPIs

While you can use KPIs to benefit your organization, these metrics also have limitations, such as data overload and the need for a significant investment in resources. Consider these potential cons of KPIs in more detail:

• Data overload: Tracking a large number of KPIs simultaneously might become overwhelming and confusing, pulling focus from what matters: the strategic objectives of your organization.

• Resource investment: Establishing, tracking, and analyzing KPIs consumes time, labor, and money.

• External competition: Although measuring KPIs can assist you in determining how close your organization is to reaching its goals, these metrics may not help you compare your own successes to those of your competitors.

• System manipulation: Measuring KPIs might encourage managers to focus more on producing strong KPI numbers to achieve performance bonuses rather than enhancing actual processes and results.

Types of KPIs

Determining the right KPIs for your objectives takes time and effort, ensuring you choose those that align with your goals and available resources. You can choose to measure several indicators, each with its own reporting requirements. Your KPIs can fall into several of the following areas, and knowing how to define your KPI can help you track it more effectively.

1. Quantitative KPI

Quantitative KPIs are metrics you can measure using numerical values. These KPIs are straightforward and provide objective data you can easily compare over time. 

Examples: Total sales in a given month, number of employees hired last year

2. Qualitative KPI

Qualitative KPIs measure qualities that are more descriptive, often assessing intangible aspects of business performance. You might measure these through surveys or other subjective feedback mechanisms.

Examples: Customer satisfaction, employee engagement, brand perception

3. Input KPI

Input KPIs represent things you put or bring into the organization, like money or people. This helps you track your resources and decide where to allocate different assets. You often input resources with a desired outcome in mind.

Examples: Number of people you hired, how much money you budgeted for a certain project 

4. Output KPI

Output KPIs are the results of what you input. For example, if your input was more call center employees, the output might be a shorter customer service wait time. 

Examples: Work performed in a certain amount of time, office efficiency, the number of customer requests employees handle each day

5. Leading KPI

These KPIs help you forecast what is to come in the future. By looking at leading indicators, you can build a picture of how your organization is likely to perform in the coming time period. 

Examples: Number of customers that renew their subscription early, how many Google searches people make about your product, social media engagement statistics  

6. Lagging KPI

Lagging KPIs help you assess the success of what you’ve already done. This informs strategies moving forward, including decisions about how to adjust or reroute initiatives. 

Examples: Number of sales made over the previous year, employee satisfaction over the previous quarter, number of clicks on an advertisement.

Types of KPI measures

In the context of business performance and management, you can broadly classify KPIs into different types based on their focus area and the aspect of the organization they assess. Discover the various KPI categories in more detail.

Strategic

Strategic measures assess the effectiveness of key business strategies by aligning performance with the organization’s long-term goals. These measures are typically high-level and focus on overall organizational health and success. 

Operational

Operational measures focus on business processes. You can use these to track day-to-day operations. These measures are often more granular than strategic measures and may track trends over each time period for specific measures.

Functional

You can use functional KPIs to focus on a specific department or operation within your organization. For example, a functional KPI for the marketing department in your company could be measuring the number of clicks an email distribution gets. 

Project

You can use project measures specifically within the context of project management to assess the performance, progress, and employee effectiveness. These measures help project managers ensure projects are completed by the deadline, only require allocated resources, and produce outcomes at the intended quality. 

Risk

You use risk measures to assess and quantify risk across various areas of your organization. Risks can be in several categories, including business (risks threatening organizational success), non-business (risks related to politics or public opinion), and financial (risk of monetary decline).

How to define a KPI

You can define your KPIs by identifying your objectives, determining how to measure success, using a SMART framework to design the KPIs, and keeping track of your KPIs over a period of time. Accurately measuring and predicting business performance relies on accurately defining your KPIs. If you have inaccurate KPIs, you may misinterpret your company's performance or allocate time and resources to areas that don’t need them. To begin defining the KPIs that are right for you, follow these steps:

1. Identify a goal.

Decide on your long-term business objectives. What are you working toward? How do you want your KPIs to help you achieve your goals? Think about what insights you hope to gain from your KPIs, and then work backward from here. Your goal can be granular or broad. For example, your goal might be to increase overall employee engagement, or it could be to increase sales by 1 percent in the coming month.

2. Determine indicators of success.

Once you have your goals, you’ll need to work backward to determine how to measure these goals. In some cases, it’s straightforward. For example, if you're tracking toward the goal of increasing your sales by 1 percent, you would record the sales you make over the next month and compare them to the previous month's sales. 

For broader goals, such as employee engagement, you have to be more creative. You can choose the metrics that work for your workforce. For example, you could track the number of employees who participate in learning initiatives, distribute surveys quarterly, or have one-on-one conversations with employees.

3. Design your KPIs with a SMART framework.

The SMART framework is commonly used to help develop KPIs that are measurable and actionable. In the context of KPIs, SMART typically stands for specific, measurable, assignable, realistic, and time-related. By making sure your KPI fits into each category, you can avoid common pitfalls or obstacles in designing meaningful indicators.

A good KPI is one that you can clearly define, communicate to your team, measure within a specified timeframe, and adjust when needed.

4. Keep track.

While you may get everything right on the first try, this isn’t necessarily the norm. Plan to track your KPIs over specific time periods and then make adjustments based on your results. This helps you build an interactive and flexible process, allowing you to change your KPIs alongside workforce development and market changes. Explore tools and technologies designed to help track your KPIs, such as dashboard software to measure KPIs in real-time, data analytics software for monitoring and reporting, and cloud services for efficient storage and collaboration.

Features of good KPIs

When developing effective KPIs for your organization, you want to make sure these metrics contain certain characteristics such as being easy to comprehend and measure, offering clear evidence of progress, setting realistic goals for employees, and preserving a healthy balance between leading (predictive) and lagging (result) indicators.

How to build a KPI-driven culture and overcome common challenges

Integrating KPIs into daily operations and decision-making has numerous benefits but can present you with some challenges, especially if it’s a brand-new concept in your organization. To overcome this, you can foster a KPI-driven culture by consistently communicating the importance of KPIs in achieving business success and leading by example by using KPIs in strategic discussions and decisions. 

You can help employees feel connected to the mission by providing training to all employees on the importance of KPIs and how they relate to overall business performance. During this process, clearly communicate individual roles in influencing KPI outcomes. 

A common pitfall for organizations is trying to track too many KPIs at once. Make sure you focus on specific KPIs, taking time to determine key measurements you can track easily and that make sense for your overall goals.

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