What are Key Performance Indicators?
Key performance indicators (KPIs) refer to a set of quantifiable measurements used to gauge a company’s overall long-term performance.
These are business metrics used by corporate executives and other managers to track and analyze factors deemed crucial to the success of an organization. Effective KPIs focus on the business processes and functions that senior management sees as most important for measuring progress toward meeting strategic goals and performance targets.
KPI’s help determine a company’s strategic, financial, and operational achievements, especially compared to those of other businesses within the same sector.
Key Performance Indicators can either be internal or external. Internal KPIs are used to gauge internal goals in the departments or sections, but will also impact achieving the core goals of the company. KPIs help to mobilize employees to work toward the achievement of core objectives.
External KPIs are used to gauge departmental/section performance in relation to the overall core objectives of the company. KPIs vary from one company to another, depending on their particular goals and chosen performance criteria.
These differ from organization to organization based on business priorities. For example, one of the key performance indicators for a public company will likely be its stock price, while a KPI for a privately held startup may be the number of new customers added each quarter. Even direct competitors in an industry are likely to monitor different sets of KPIs tailored to their individual business strategies and management philosophies.
The KPIs followed most closely by different people in the same organization can also vary depending on their roles. For example, a CEO might consider profitability to be the most important performance measurement for a company, while the vice president of sales could view the ratio of sales wins vs. losses as the highest priority KPI.
Furthermore, different business units and departments are typically measured against their own KPIs, resulting in a mix of performance indicators throughout an organization — some at the corporate level and others geared toward specific operations.