Table of Contents
What does KPI Mean?
What does KPI Mean? Key performance indicator, or KPI, is a quantitative measurement of performance over time for a certain goal. KPIs offer goals for teams to strive towards, benchmarks to evaluate progress, and insights that aid individuals throughout the organization in making better decisions. Key performance indicators support the strategic advancement of every department within the company, from marketing and sales to the finance and human resources department.
Understanding Key Performance Indicators (KPIs)
KPIs, also known as key success indicators (KSIs), differ between businesses and industries based on performance standards. Let’s use an example to help you grasp what KPI means. For example, a software company that wants to grow at the quickest rate in its sector would use year-over-year (YOY) revenue growth as its primary performance measure. On the other hand, a retail chain may value same-store sales more highly as the ideal KPI statistic to measure its expansion.
Data collection, storage, cleaning, and synthesizing are the foundation of KPIs. The data could pertain to any division across the entire organization and could be either financial or non-financial in nature. Understanding what KPI means & it’s objective is to clearly communicate outcomes so that management may make more informed strategic decisions.
What KPI Mean vs What Metrics Mean
Metrics and key performance indicators are related but distinct concepts. Here is a brief explanation:
- To have the biggest impact on your strategic business outcomes, you should monitor what KPI mean. KPIs assist your teams to concentrate on what’s important and support your strategy. A significant performance metric may be “targeted new clients per month,” for instance.
- Metrics assess how well routine business operations support your KPIs. Although they have an impact on your results, these are not the most important metrics. “Monthly store visits” and “white paper downloads” are a couple of examples.
Why Are KPIs Important?
KPIs are a crucial tool for ensuring that your teams are contributing to the general objectives of the company. Here are a few of the prime reasons for what KPI mean & why key performance indicators are necessary.
- Maintain team alignment: KPIs keep teams moving in the same direction, whether they’re used to gauge project success or worker performance.
- Give a health evaluation: Key performance indicators, including risk factors and financial indicators, give you a true picture of the state of your company.
- Make modifications: KPIs enable you to see your achievements and failures clearly so that you may focus more on what is successful and less on what is unsuccessful.
- Hold your groups liable: Make sure everyone contributes value by using KPIs that allow employees to monitor their development and managers to advance the situation.
Types of KPIs
There are numerous types of key performance indicators and we need to know exactly what KPI mean & its types. Others are used to track long-term progress rather than monthly progress toward a goal. The fact that each KPI is connected to a strategic goal is the one thing that unites them all. Here is a summary of some of the most popular KPI kinds.
- Strategic: These broad-based KPIs keep track of the objectives of the organization. Typically, executives use one or two strategic KPIs to measure the performance of the company at any particular time. Examples include market share, revenue, and return on investment.
- Operational: These KPIs concentrate on organizational efficiency and processes, and they often measure performance over a shorter time span. Examples include regional sales, monthly transportation expenditures on average, and acquisition costs (CPA).
- Functional Unit: Many KPIs are connected to particular functional units, like finance or IT. Finance KPIs track gross profit margin or return on assets, whereas IT may track time to resolution or average uptime. These operational KPIs are also categorized as strategic KPIs.
- Leading vs Lagging: Regardless of the kind of key performance indicator you choose, you should be aware of the distinction between leading and lagging indicators. Lagging KPIs track what has actually occurred, but leading KPIs can aid in outcome prediction. To make sure they’re tracking the most crucial information, organizations utilize a combination of both.
3 Steps to a Stronger KPI Strategy
It’s time to change your plan if your key performance indicators aren’t producing the outcomes you want. Here are three steps you can take to make sure everyone in your organization is aware of what KPI mean and how to use them to make business-impacting data-driven choices.
- Choose KPIs that are most important: You should include a balance of leading and lagging indicators to ensure that you are measuring what is important. Lagging indicators make it easier to comprehend results over time, such as sales over the last 30 days. Using data-based predictions, and leading indicators enable you to make changes to your strategy to achieve better results.
- Make a culture that is KPI-driven: If employees don’t grasp what KPI mean and how to apply them, they won’t be very useful (including what the KPI acronym means). To ensure that everyone in your organization is working toward strategic goals, increase data literacy. To ensure that everyone is making decisions that advance your company, educate staff, give them pertinent KPIs, and use a best-in-class BI platform.
- Iterate: Adapt your key performance indicators to changes in the market, your customers, and your organization. Meet frequently to discuss them, closely examine performance to determine if changes are necessary, and publish any modifications you make so that teams are always informed.
Levels of what KPI mean, KPIs can be used by businesses on three different levels. First, company-wide KPIs concentrate on the overall performance and health of the organization. These KPIs are helpful for letting management know how things are progressing. They frequently aren’t precise enough to allow for decision-making, though. Conversations on why particular departments are performing well or poorly are frequently started by company-wide KPIs.
Companies frequently start exploring department-level KPIs at this time. KPIs at the departmental level are more focused than company-wide KPIs. These KPIs are frequently more illuminating as to why particular outcomes are occurring. Due to their concentration on a relatively specific area of a business, many of the examples given above are department-level KPIs.
If a business decides to go even further, it may use project- or sub-department-level KPIs. Management frequently requests these KPIs precisely because they could need for extremely specialized data sets that might not always be accessible. For instance, management could want to interrogate a control group in great detail over a proposed product rollout.
Advantages of KPIs
KPI analysis may be desired by a corporation for a number of reasons of what KPI means. KPIs assist management in understanding specific issues; their data-driven methodology offers measurable data helpful in strategic planning and assuring operational excellence.
KPIs assist in holding employees responsible. KPIs can’t discriminate among employees because they are statistically supported and don’t rely on feelings or emotions. When applied properly, KPIs can boost employee morale since salespeople may become aware that their performance is being closely watched.
Additionally, KPIs serve as a link between real business activities and goals. A corporation may create objectives, but without the ability to monitor results, the plans serve little to no value. KPIs, on the other hand, enables businesses to set goals and track their success.
Limitations of KPIs
Working with KPIs has various drawbacks that should be taken into account and know about what KPI mean. KPIs could take a very long time to produce data that is useful. For instance, in order to better understand trends in satisfaction rates over extended stretches of time, a corporation might need to collect annual data from employees for years.
For KPIs to be effective, they must be continuously tracked and closely followed. An unanalyzed KPI report serves no purpose if it is created. Additionally, KPIs that are not consistently checked for validity and plausibility do not promote wise decision-making.
KPIs give managers the opportunity to “game” the system. Managers may feel motivated to concentrate primarily on raising KPIs linked to performance bonuses rather than genuinely improving procedures or results. Additionally, quality may suffer if managers are overly preoccupied with productivity KPIs, and staff members may feel overly pressured to reach strict KPI benchmarks that may just be unreasonable.
- Aids in holding personnel responsible for their conduct (or lack of)
- May inspire workers to achieve goals if they feel positively challenged
- Enables a business to set goals and track progress towards those goals
- Provides managers with a wealth of information on a company’s performance & culture.
- Include the potential time commitment of regularly collecting data for extended periods of time.
- This may encourage managers to concentrate primarily on KPIs rather than a more comprehensive plan by requiring continual monitoring for data accuracy and appropriateness.
- Employees may become discouraged if KPI expectations are unreasonable.