Why we created KPI Karta
KPI Issues
Tracking business success is difficult. It’s complex to figure out what to measure, so most companies monitor values that seem important but actually are not. That may sound ridiculous, but it’s true.
According to Dean R. Spitzer, 93% of organizational leaders believe that measurement is important in influencing business outcomes, but only 51% are satisfied with their current systems, and only 15% are very satisfied. That’s a terrible gap in expectation to reality.
KPIs are overused but underutilized. Companies often spend months trying to establish effective KPIs to improve business performance measurement, but they are often abandoned shortly after implementation because the numbers being tracked are ill conceived and not suitable, so users quickly lose interest. That’s mostly because what’s often called a KPI isn’t key to the business at all.
KPIs are a great way to help identify how your business is performing, but if they aren’t well conceived, you may be relying on faulty values which may cause more harm than good.
KPI Definition
A KPI is a metric that informs how your business is doing. Many people confuse measures and metrics, so let’s define them:
Measure is a number that is derived from taking a measurement. A measure is the observed value of a number at a point in time. Measures are raw numbers and data points found in data or reports; often in corporate databases, call centers and other data silos. On their own, measures deliver little value.
Metric is a value derived or calculated from measures. Ideally, it should be expressed as a ratio, average, percentage or rate.
For example, ‘in-store visitors’ is a measure, while the ‘percentage increase of in-store visitors’ is a metric. Simply knowing how many visitors we had at a point in time delivers no real insight unless we know how many we had before. The calculation to arrive at the metric does that for us. So, by monitoring the metric we better understand how store traffic is changing. That may be very important to know when evaluating how promotional programs are driving customers to stores.
Since there are hundreds or even thousands of measures and metrics produced in our daily corporate lives, KPIs should only focus on the ones that are essential or impactful to business performance measurement. A KPI, as the name implies, measures key items that are necessary for success. They should monitor actions and events that tell you about performance.
KRI (Key Results Indicators) Definition
KRIs measure the results from your many business actions, whereas KPIs track specific actions or activities. Don’t confuse the two. KPIs don’t measure goals; KRIs do. Unlike KPIs, which measure the precise actions we take to obtain certain results, KRIs report on results of many activities, are backward looking and inform what has happened
.
KRIs measure the effect of business activities but ignore the cause. Revenue, ROI, product efficiencies, staff turnover are KRIs and only inform how you did but not why. For that we need to establish KPIs.
Monitoring Revenue is obviously important, but if it changes, you don’t know precisely why and what to do differently. Instead, you need to track the activities that caused Revenue to change. Those activities are tracked with KPIs. If one of those KPI values changed, you know exactly what action to take.
The reason we make the distinction is that many people incorrectly track the results of many actions or activities and call them KPIs. It’s certainly important to track goals, but you don’t know what caused the goal to be reached or not if you don’t track the actions or activities that align with those goals.
What action would you take if revenue dropped? To identify what you need to do, you will have to drill down further into the activities and processes that cause the revenue to change.
In his book, “Key Performance Indicators”, David Parmenter states that KPIs have a significant impact on the organization and that they must clearly indicate what action is required by staff. And that’s the part that most KPIs don’t do.
Just measuring high level results such as revenue or number of customers is a missed opportunity because it doesn’t answer how you got there and what should be done next. Instead, we need to evaluate the events that caused those results. Certainly, we can conclude that if Revenue increased to meet our goal, we succeeded, but we don’t know what we did that caused it. It could have been due to improved customer retention, higher conversion rates, better margins, more affiliate partners, more sales people, opening of new markets, new product launches and so on.