KPI (key performance indicators) - are the performance indicators of a business that help it in achieving strategic and tactical (operational) goals. Using key performance indicators gives the company the opportunity to assess its current status and help in monitoring the success of the implementation of its strategy.
KPIs are based on a balanced scorecard, that is one of the most popular strategic management methods today, with an integrated approach to achieving goals. Moreover, it is assumed that when all the goals of the lower level of the hierarchy are achieved, the main goal is achieved automatically. Here, the emphasis is on increasing the importance of the role of the leader in providing support to employees, for example, holding an annual discussion of the results of their activities according to KPI indicators, with the formation of an employee development plan.
KPIs allow one to control the business activity of employees, departments and the company as a whole. With the help of the KPIs, a business owner can create a perfect and effective system of motivation and incentives for company employees, so KPI and staff motivation have become inextricable concepts.
Depending on the strategy, companies set different KPIs. Basically, they use this indicator to determine the effectiveness of the staff’s work.
Key performance indicators can be divided into:
- delayed - reflecting the results of activities after a period of time;
- leading - giving the opportunity to manage the situation within a period, in order to achieve specified results.
Delayed ones include financial performance. Due to their specificity, they cannot describe the current effectiveness of departments and the company as a whole.
Operational (leading) indicators allow the evaluation of the current activities of departments and the company as a whole, while simultaneously and indirectly answering questions about what cash flows may be in the future, as well as what is the quality of processes, products and the degree of customer satisfaction.
As a result of the introduction of KPIs, a firm can achieve the following positive results:
- Improve the efficiency of the business;
- Define the main factors and indicators of success;
- Plan on the base of goals but not achieved indicators;
- Develop realistic standards;
- Transparently assess the staff performance;
KPIs may not only be useful to the business management. They help orient business managers to ordinary employees, especially those whose income directly depends on the results of their activities.
Do you use KPIs in your business practice?
