It is therefore not a gadget, but a management tool for a project or a company. In this article, you will learn about what a KPI is, the different types of KPIs and the steps to define them.
Definition of the term “key performance indicator – KPI”
Key performance indicators are used to measure and evaluate the performance of business processes. The long-term objective is to manage activities more efficiently and more effectively for better management of society in general.
According to Austrian professor, consultant and writer Peter Ferdinand Druncker, a renowned man considered to this day as one of the fathers of management:
“What can be measured can be improved. “.
This famous quote perfectly describes the interest of using KPIs in business strategies. The acronym KPI is used to express the English terms “Key Performance Indicator”, literally translated as “Key performance indicators” in French.
Whether quantitative or qualitative, KPIs are also excellent vectors of communication used to simultaneously transmit:
- and the company’s mission to its various employees.
The different types of key performance indicators
Developments in production and marketing techniques have favored the emergence of several key performance indicators for the benefit of managers. But before choosing the right key indicators, it is important to know them. These different KPIs can be classified according to function or activity.
They stand out:
- monitoring indicators which are used to manage and adjust actions already in progress (average basket, retention rate, etc.),
- and result indicators thanks to which you can check whether your objectives have been achieved (turnover, customer acquisition cost, etc.).
Key performance indicators by function
Each key performance indicator provides precise information. This information will be compared with other data collected with other indicators to make decisions to improve the process. The main types of key performance indicators are:
The data provided by these indicators help the manager to quickly detect:
- products or services sold that do not meet quality standards,
- and those who do not meet customer needs.
He can therefore determine the cause of this discrepancy and take action to ensure that the products or services meet standards and ensure customer satisfaction.
Linked to key success factors, these indicators reflect the strategic planning of the company’s activities and its vision for its future activities. The company can therefore determine whether its strategy is working or not and improve it.
The manager uses them to measure the performance of production teams by comparing the resources used and the quantity of production over a given period. He will thus be able to detect shortcomings in the production process and improve them.
They are used to measure the maximum capacity of the business in a given area. This can be the number of product or service that can be delivered over a period of time or the maximum storage capacity of warehouses.
Performance indicators according to the field of activity
Key performance indicators are used in all business areas to achieve defined strategic objectives. However, they vary from activity to activity and must be defined precisely.
Performance indicators in e-commerce
KPIs for e-commerce perform several functions. They are used to determine the evolution of sales, marketing and customer service. They can communicate information like the traffic of a site or the gain realized by number of page views. Their role is to guide the decisions of the company and provide the means to improve marketing, sales and customer service.
Organizational performance indicators
They are generally used by human resources departments to calibrate the cost of the payroll and determine its productivity. They also use them to measure the return on investment provided by human resources strategy. The most popular are:
- the Turnover,
- the absenteeism rate,
- or the dropout ratio, etc.
Commercial performance indicators
These performance indicators are used to determine the activities of the company that offer the most profitability in the medium and long term. They are integrated into marketing campaigns to collect data to determine the effectiveness of marketing and sales departments.
The key performance indicators related to the marketing and commercialization of a product are of three types:
- those related to the effort: number of registered prospects, number of meetings, incoming leads, etc.
- Key performance indicators: length of the sales cycle, identified turnover, number of contracts signed, etc.
- and finally, those related to the effectiveness of marketing: number of new customers, number of prospects, conversion rate, bounce rate, etc.
Financial performance indicators
Financial KPIs are used to analyze and determine the health of the business and to control cash flow. The analysis of these tools is necessary to evaluate the performance of the company and to identify the risks, in particular those related to the buyers (ex .: refusal of payment).
We can cite: the rate of return, the rate of payment blocking and the return on investment.
Performance indicators in project management
Key performance indicators in project management provide the project manager with the means to measure the achievement of tasks against planned thresholds. He can thus determine the gaps between the objectives and the results and effectively administer his teams.
As an example, we have: the respect of deadlines, the error rate, the completion rate or the percentage of achievement of the objectives.
How to use key performance indicators?
To analyze key performance indicators, presentations of management dashboards in order to improve and make easier the decision-making process. It is imperative to update them regularly to ensure the quality of the results.
Key performance indicators also find their place in the balanced scorecard (Balanced Scorecard — BSC in English). In this case, they evaluate the achievement of a precisely defined objective or of an element which contributes to the achievement of this objective.
We can also compare or associate a key performance indicator with other metrics from CRM software or Google Analytics to measure the effectiveness of the strategy in a broader context.
How to choose the right performance indicators?
An effective performance indicator must have specific characteristics. It conveys the meaning of information and must therefore be:
- well selected,
- and presented.
Its choice is necessarily made according to the defined marketing strategy. And also the target and the specific context of the activity whose performance it will be used to analyze. Here are the steps to define or create good KPIs:
Identify the needs
Identifying needs means determining the data to collect in order to understand the evolution of your activities and make decisions. It is about identifying the characteristics of your offer, taking into account the market, which testify to the value in the eyes of your customers or future customers.
Ask yourself the right questions to determine what data is useful for you!
- What are the objectives foreseen by the current strategy?
- What metrics should you use to measure business success?
- What are the variables that could influence the success of the action plan?
Choose performance indicators
Identifying important KPIs is not easy. And the best way to do this is to look to business strategy to choose KPIs that give accurate data. They must therefore provide the necessary information at each stage of the process for better decision-making.
Here are some questions to ask yourself when looking at your KPIs:
- Are we strengthening the actions put in place?
- Will the resources be sufficient?
- Is it necessary to revise the action plan or the agenda?
- Will the goal be achieved?
Be careful not to fall into the trap of KPI jungle. By trying to do too well, you risk defining too many indicators. And find yourself, in fact, in front of a complex and unusable dashboard.
In reality, good management only requires ten key performance indicators.
Monitor and improve
Continuous monitoring of the evolution of KPIs and results is essential to properly assess the performance of the process. This is why the indicators created or chosen must be easy to measure and understood by the whole team. When it appears that a performance indicator does not lead to the defined objectives, do what is necessary to improve your processes. After all, a good manager spends more time improving than measuring.
Note that a good KPI measures only one aspect of the process. It is therefore not enough on its own to do a good performance analysis and make the right decisions.
This is why performance indicators that are too globalized or synthetic indicators are never to be favored. The ideal is to focus on relevant indicators such as improvement indicators.