Company performance indicators: Characteristics and KPI examples
Setting the company performance indices allows the manager to check if and to what extent the strategic objectives have been achieved. For this reason, I go back to talking about KPIs (Key Performance Indicators) focusing on how to achieve an effective measurement of the activities carried out and the processes implemented according to the business objective.
If the process works, I can give continuity to the action and, if appropriate, implement it. If the process does not respond as expected, I will have to put corrective solutions in place to improve it.
KPIs: what they are and why are they needed?
I dedicated an in-depth study to what KPIs are, the English acronym for Key Performance Indicators. I invite you to read it to follow the logical development from the concept, already expressed, of a useful metric to describe how much and how one approach (or deviates) from a set goal to the key points on which I will focus in this article:
- company performance indicators are aligned with company objectives (macro-level) and are defined at the beginning of each strategy, then to be evaluated during the process in order to monitor its progress;
- the KPI indicators include an exact numerical indicator, which is why the measurability and reachability of said objective are also included among the KPI characteristics.
- company performance indicators are not numbers thrown at random in a report but are used to establish that the process is on the right path.
Company performance indicators: 3 parameters to measure
The KPIs are chosen on the basis of the objectives, which in turn depend on the quality of the business processes and the sector of the organization. This level of variability should not lead us to think that the KPIs are totally subjective: although you may have a free hand in selecting the performance metrics, the company performance indices still refer to 3 basic parameters.
- Effectiveness: to measure it, indicators are chosen to measure whether the output produced in the processes is consistent with the starting requirements.
- Efficiency: the measurement of efficiency requires good KPIs relating to the final cost of the product made with the process. This cost must be as low as possible compared to the number of resources used and the time spent.
- Value: the metric to be measured serves to understand if the process has generated added value for the organization. Added value is the measure of the increase in value achieved with capital and labor starting from the initial resources. This aspect also concerns the improvement in the communication of said added value to strategic stakeholders.
KPI characteristics: the SMART method
While on the one hand, the number of company performance indices ranges from 3 to 10 (but you can choose more, or even less), on the other hand, it is important to select the useful and usable KPIs to measure effectiveness, efficiency, value, quality, safety or any other parameter that falls within the corporate strategic plan.
The product manager collaborates to determine the number and type of KPIs to monitor, because he knows the process of product management and knows what data is actually necessary for the creation of value.
To identify the KPI characteristics you can draw inspiration from the SMART method of defining business objectives. In the SMART acronym, every single letter defines the characteristics of a goal:
- Specific
- Measurable
- Achievable
- Relevant
- Time-bound
More about the importance of SMART KPIs you can find here.
Characteristics KPI Specific
Focus on the goal, only in this way will you be able to concentrate enough energy to achieve it. To be specific, the goal must have clear and defined outlines from the answers to the following questions: “What do I want to do?”; “Because it is important?”; “Who is involved?”; “What resources do I need?”.
Characteristics KPI Measurable
Be sure to identify both the business performance indicators that can be expressed in the form of numbers and the suitable tool for monitoring in order to measure the performance of the organization during the process.
Characteristics KPI Achievable
Limit your ambitions, commensurate them with resources and abilities. Although the goal raises the bar, aiming for improvement and the achievement of value, it must in any case remain within the limits of feasibility.
Characteristics KPI Relevant
If it is not relevant it is not important. Before devoting your resources and energy to pursuing a goal, make sure it is truly worth it and is aligned with other strategic goals related to it. For example, you could choose a specific, measurable, and achievable KPI, but not relevant. This KPI will prove to be ineffective and, in conclusion, useless as part of the corporate strategy.
Caratteristiche KPI Time-based
Always set an expiration date: you will have a deadline that marks the activity plan both in the short and long term and you will be able to organize time by priority, without losing sight of the final goal. The continuity of the plan will also give you the opportunity to measure company performance indices according to the most appropriate periodicity.
Categories of corporate performance indicators
KPIs are the detectors that signal what is working, to what extent, and why that portion of the process will create value.
In management by objectives, I think starting from the end: first I establish a SMART goal and then I plan a strategy to achieve it, within which I insert detectors (KPIs) that act as alerts.
Depending on the sector of activity and the organization’s mission, I can use specific types of KPIs, selecting them from the main categories:
- General KPIs = are relative to the volume of the process
- Quality KPIs = measure the quality of the output based on precise standards
- Cost KPIs = metrics that segment the costs of the process
- Time KPIs = monitor the time that passes from the start of the process to its conclusion
Within these macro-categories, each company department (eg marketing, commercial, financial, production) will establish its own KPIs on the basis of sales objectives, promotional campaigns, customer satisfaction, etc.
How to use corporate performance indicators: practical examples
To demonstrate how you can use KPIs, I bring some practical examples of how to use company performance indicators. Suppose you have analyzed the sales channels: e-commerce shows room for improvement in terms of profits (total revenue) and expansion of the scope of the new customer base.
The goal is therefore to set up an effective online marketing campaign, in terms of costs and sales conversion rate. Which marketing KPIs do I choose? Here are 3 possible:
- Traffic volume/Lead generation: by monitoring the relationship between the volume of traffic on the site and the number of leads (profiled contacts) generated, I try to understand how public engagement converts (or does not convert) into sales.
- Click-Through Rate (CTR): is an indicator that shows the click-through rate in relation to the number of views of individual ads in an online advertising campaign, providing a measure of its effectiveness.
- Cost Per Click (CPC): it is the cost that I incur for every single click by the user on the paid promotional advertisement.
Examples of economic-financial KPIs
The same company taken as a model in the previous case can decide to set up an economic-financial development strategy, choosing some KPI indicators such as:
- Percentage Growth Revenue: This is a key performance indicator for companies. To calculate the growth rate in a year, you will have to take the most recent value, subtract the value of the revenues at the beginning of the period considered, divide the figure obtained by the initial value and multiply everything by 100. If the number obtained is positive I have a growth/development, if instead, it is negative, corrective actions in the sales and marketing area will be necessary.
Percent Growth Formula
{[Final Revenue Value – Initial Revenue Value] / Initial Revenue Value}*100
- Cost control: the aim is to activate a performance indicator that tracks any waste of financial resources. The report in question must contain data on profits and losses, based on income/expenses, in a given period of time. In this way, you will be able to understand if and where there are possible cuts that generate savings to invest in the most profitable activities.
- ROI (Return On Investment): it is one of the most common performance indicators because it provides the economic return obtained from an investment, such as the digital marketing campaign which I started.
Formula ROI
Operating income (or gain from the investment made) / Capital invested
Company performance indices: 3 best practices
Before concluding, I want to leave you some ideas to set the business objectives in a smart way, so that the process derives the maximum possible benefit.
- The goal is a mirror of the strategy
The objective and the related KPIs are a reflection of each other and both reflect the needs of the company and its mission statement. If the overall vision is short-sighted or approximate, you will have poor goals dictated by underperforming KPIs.
“If you don’t aim at anything, you’ll hit it every time.” (Zig Ziglar)
Choose the KPIs that reflect your goals and your vision, without being misled by general statistics or improvised ‘experts’. Always ask yourself what is more significant, having as a reference the company and the product and their structural and distinctive features.
- The goal is an instrument of transparency
Having a clear goal removes gray areas and communication gaps, facilitating the work team and managers during the process. Each KPI marks an arrival point and at the same time a stage that tells where you are and how the journey is proceeding.
- The goal is the finish line and the stage
Break down the long-term goals into a series of results to be achieved along with the action plan, some of them will be consequential, others may be simultaneous. If you have an annual goal, KPI checks on a quarterly basis can be pit-stops to see if you’re going straight to the finish line.