There’s a lot of talk in business about KPIs — and rightly so. KPIs, or, Key Performance Indicators, have been described as the “backbone of business.” KPIs offer businesses and nonprofits alike a way to evaluate progress toward performance goals, and also communicate organizational strength to investors and stakeholders.
While individual departments will typically have their own KPIs, at the executive level, it’s generally advised that organizations focus on no more than five to six KPIs. Deciding which metrics should be used as KPIs requires that leadership evaluates performance and determines what factors are driving the business.
A KPIs Importance + Difference between Measures and Metrics
Discussion of KPIs frequently includes mention of various measures and metrics — but what’s the difference between measures, metrics, and KPIs? The Adaptive Insights blog offers a straightforward breakdown. Essentially:
- A measurement is a quantifiable unit. Examples include the number of customers, or the number of orders, or a specific dollar amount of revenue.
- A metric is a combination of two or more measures. Examples include customers over time or revenue over time.
KPIs are most effective when they put a specific aspect of business performance into broader context, so it’s recommended that KPIs be expressed as ratios or percentages.
3 Important Reasons to Establish KPIs for Your Business
KPIs are most commonly used to evaluate corporate performance and track change over time. This is especially important in today’s ever-changing business environment. While the company’s short-term objectives may change, KPIs should be constant, providing a consistent measurement of success over time.
Focusing on Goals
In addition to helping evaluate corporate performance, KPIs play an important role in helping focus employees on common goals. This is particularly important in individual departments. Departmental KPIs can help employees better understand how individual efforts contribute to the success of the company as a whole, and can help build a sense of ownership and teamwork among coworkers.
Tracking progress with departmental and organizational KPIs can also help boost team morale in a complex business environment by offering concrete feedback to their collective efforts.
KPIs are also valuable in helping promote individual and departmental accountability to the greater organization, as well as corporate accountability to shareholders and other interests.
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