Key Performance Indicators (KPIs) evaluate the success of an organization or a particular activity. These indicators are commonly used in every business or organization to measure the overall business performance over time. They are insight-driven which differentiate them from goals and are the metrics or indicators that will tell you whether you are on track or not to achieve that goal.
Traditionally, KPIs have been displayed on static dashboards, providing a convenient snapshot of metrics. However, as analytics capabilities evolve at a breakneck pace, it’s time to explore the potential of KPIs beyond the limits of these visualizations. Welcome to a series of articles that will delve deeper into the realm of analytics beyond dashboards, uncovering novel approaches to leveraging KPIs to drive innovation, predictive analytics, and informed decision making. Get ready to discover how KPIs can transcend the limitations of static screens and become catalysts for transformational growth and success.
Know the differences
KPIs are aligned to short or long-term business goals and objectives and are quantifiable metrics to measure the performance in achieving the objective or goal; hence, businesses always try to choose the most important ones for accurate and reliable outcomes.
KPIs serve as a benchmark for day-to-day activities focusing on the performance of them with a narrow scope. They are aligned with individual success factors. Of course, external agents can change our day-to-day activities which leads to our latest KPI characteristic, that they are flexible to be tweaked and adjusted.
On the other hand, a goal represents a desired outcome that an organization, team or person aims to achieve within a specific period, mostly in a long term. Goals provide a clear direction for the effort compelling various aspects of business, such as revenue target, market share, customer acquisition or operation efficiency.
Goals define how success looks like for the organization. They are usually more qualitative and subjective compared to KPIs.
To make a clear difference between smart goals and KPIs, visualized the goal as a finish line, did you cross it or not? Goals are more likely yes/no questions, compared to KPIs that are attached to a measure scale to have a meaning.
Talking now about objectives, they are more focused, concrete, and actionable than goals, we can say that goals are the inspiration whereas an objective is operational. Compared to a goal, an objective is small-scale and dealing with a specific issue that needs to be solved. Think about a wedding cake, each tier (aka objective) can have its unique decoration, telling us a single story, but if we look at it from far away, each tier is complemented by the following and the whole cake will tell us the couple story (goal).
Objectives can be thought as the answer to the question of what actions we want to concrete to see success as it is described in the goal, while KPIs are the how this objective will be achieved.
We would also like to differentiate KPIs from metrics. Metris are the support of the KPIs representing the actions or tactical processes necessary to achieve the KPIs. Metrics measure against targets for specific actions. If your objective is to reach 50% more sales in the next quarter, the KPI will tell you this month about how close you are to the objective by showing you your cumulate sales, while metrics can tell your sales per channel, per month, per operation unit, etc.
To summarize, goals support vision and more specific objectives add detail to the goals. KPIs indicate your performance in meeting the objective, and metrics measure the performance or progress of specific process, activity, or actions.
Choosing your KPIs
A ‘SMART’ KPI method is a refined version that has been through a process or a series of questions before making it to your dashboards or reports.
‘SMART’ is an acronym for five different attributes a KPI should have:
- Specific: It is specific to a particular goal, task or objective. The KPI should be directly linked to the objective.
- Measurable: It can easily be measured in numbers or percentages.
- Attainable: It should be achievable.
- Realistic: It is the product of a solid foundation
- Timely: It has a time frame attached to it
By applying the previous method, in a sequence of consecutive rounds, you will achieve the definition of your KPIs.
As an example, we suggest a structure as follows:
Action -> Detail -> Value –> Unit –> Deadline -> Increase external customers to 50 by 31st of December 2023
Our main advice is to keep things simple. KPIs should be understood by everyone within the organization so people can engage with them.
But what would happen if in an organization KPIs were wrongly defined? It can lead to misalignment with organizational goals, inaccurate performance evaluation, misguided decision-making, demotivation, missed potential opportunities, and a lack of continuous improvement. It is crucial to carefully define KPIs to ensure they accurately reflect the department’s objectives and provide meaningful insights for effective decision-making and performance management.
But defining a successful set of KPIs does not end in applying a concrete method. To create effective KPIs you also need to track and report them appropriately and accurately. If you are interested in learning how to create dashboards for tracking KPIs, please read this post on constructing successful dashboards.
In today’s digital landscape, where websites and mobile applications play a pivotal role in engaging customers and driving business growth, the importance of analytics cannot be overstated. In the upcoming article, we will dive into the realm of website and mobile application analytics, exploring the way businesses leverage data to optimize their digital platforms. Join us as we unravel the secrets of analytics beyond dashboards and unlock the true potential of the analytic world.