What are KPIs and what is their purpose?

The abbreviation “KPI” stands for “Key Performance Indicator.” In a roundabout way, it describes exactly what KPIs are—a means of monitoring performance in key areas, with a specific end goal in mind.

The main idea behind KPIs is to establish a specific outcome and measure the progress along the way, all in order to learn from the collected data and use it for future planning.

KPIs have seen a surge in popularity lately, making them a veritable revolution in business. They’re the ideal solution if you want to improve your company’s overall performance, but also inspire your employees to be more driven.

How to get the CEO on board? The pros and cons of KPIs

While KPIs may seem like a dream solution from a certain point of view, CEOs might not be so easily convinced—and their concerns are valid.

Even KPI enthusiasts such as ourselves can’t deny that there are elements to KPIs that tend to raise red flags. Data security is one such area, as it’s hard to monitor financial data without losing its confidentiality. Since transparency is one of the core tenets of KPIs, this could become an issue for some top executives.

With that said, there is one crucial aspect of KPIs that should more than make up for that particular fear CEOs have to overcome: concrete data. While disclosing metrics is a delicate subject, you simply won’t get the full picture of how your company is doing without this disclosure. After all, how can you really expect to know whether this month or quarter is better than the last when you can’t reliably compare notes?

In that regard, a lot of CEOs rely on their gut feeling. While that certainly is one way of doing things, it’s hardly an objective metric. KPIs help you operate on factual data, not only establishing a more consistent way toward better profits, but also allowing your team to work together more organically.

As a result, it never falls to just one person to be responsible for a project, a department, or even the whole business. The effort becomes collective.

How to communicate implementing KPIs to the rest of the company?

CEOs are one thing, but your other employees may be wary of KPIs, too. Revolution has never been an easy path, and people really don’t like to deal with change if they can help it. Plus, KPIs make things much more transparent and many people fear they might be misused as a tool to point fingers, pin blame, or even go as far as to incite witch hunts.

This fear can get so strong that some people may never come around to trusting KPIs; however, most are likely to become much more open to them once they realize the tradeoffs that come with the change. The same transparency they fear might serve as a gateway to bullying can actually help them get the recognition they deserve for their efforts.

Not only does it make employees feel safer and perform better when they see that their work is being appreciated, they’ll also have a much higher opinion of their workplace. When used correctly, KPIs serve to create a more fair environment that treats everyone equally based on the quality of their work, not to rule over them with an iron fist. That way, you’re not just increasing efficiency—you’re building morale.

And while we’re at it, no one really likes to have their boss breathing down their neck. KPIs are designed to focus on finding solutions rather than seeking out unruly minions to punish. Having them implemented makes everyone feel like their contribution matters.

How to choose the right KPIs for your company?

One of the greatest and most common mistakes companies make that turns them off the very idea of using KPIs is that they’re attempting to use a template.

Since KPIs are all the rage these days, it’s understandable you might want to take a look at the sort of KPIs other companies in industries similar to yours implement. And this is where that critical error happens—those KPIs aren’t yours.

KPIs have to be tailor-made and business-specific. In order to make sure your KPIs work for your company, there are several aspects you should consider:

  • What type of business do you run? Are you a service or product company? (This is the best question to start with, as this aspect determines your overall goals.)
  • What is your service/product? (Consider how this can impact the motivations and responsibilities of your employees.)
  • How do you charge for your service/product?
  • What is the scope of your service/product?
  • How do you operate as a business?

The reason for this particular order is that starting from the base and moving upward is a surefire way to figure out what it is you really need. This is how you arrive at the particular set of KPIs that are just right for you.

How to prioritize and implement the most important KPIs?

Once you set your goals and know where to go from there, it’s very easy to get carried away. Sometimes, people start working with KPIs and get tangible results right away—that’s great, but not a hard-and-fast rule. Taking a step back is the smarter approach.

While it may be tempting to expand your initial KPIs from 5–10 to 20 or even 40, the best course of action is to stick to your guns, at least for a while. The more KPIs you add, the more overwhelming the amount of information and less clear the course of action.

When you’re working with a smaller pool of KPIs, finding your focus becomes crucial. Good prioritization can come a long way in making your business efficient. It’s best to start by trying out a few KPIs and seeing what works. Your actions have consequences—finding out which ones produce results and eliminating those that don’t is key.

The next step you’ll want to take is evaluating the stage you’re currently at. For instance, if you’re an up-and-coming company, devoting more of the KPIs to hiring will probably make the most sense for you.

You’ll quickly discover which types of KPIs are not relevant to your current situation—filter them out mercilessly. This will help you find out which metrics are actually moving your company forward, allowing you to set up your KPIs around them.

How to implement KPIs effectively?

As we mentioned before, there’s no single KPI template that any business can use if they wish to really grow from it.

What you do as a company is absolutely central to the entire idea, so examining the core of your activities should be your starting point in deciding where you take your KPIs. A good way to help you stay focused on what matters the most is to keep track of what works and what doesn’t using Microsoft Excel or Google Sheets.

You can also spare yourself some headaches and hire a KPI specialist to handle everything for you. It takes practice to really figure out what kind of KPIs will benefit your business, but if you’re working with someone who already knows the field like the back of their hand, it’ll make your life a whole lot easier.

Another relevant point to bring up here is that if you really want to master KPIs, you need to have a single, unified source of truth. Software such as Power BI presents data from everyone involved in the project using a dashboard, while also providing reports on the condition of the company.

Most importantly, however, keep in mind that KPIs are not set in stone. You don’t just decide on one set of them and run with it indefinitely. It’s only with a continued effort to improve, innovate, and monitor your KPIs that they can truly play their part.

What are the benefits and risks of implementing KPIs?

While we’re confident KPIs are the revolution modern business needs, they might not be for everyone. By choosing KPIs, you can count on the following benefits:

  • Properly applied KPIs and targets help your company embrace autonomy and self-organization, fostering the intrinsic motivation of your employees.
  • Everyone’s actions become transparent, so it’s evident how their collective efforts make a difference, helping them grow both individually and as a team.
  • With less micromanagement and more freedom, as well as a goal that unifies the entire company, there is far less potential for conflict and more ground for trust.
  • You can’t improve what you don’t measure. KPIs show you where you stand today, so that you can move in a new direction tomorrow. No more wading in the dark.
  • You don’t have to give up on trusting your intuition—this is the “gut feeling” revolution. Intuition is a useful tool that comes with invaluable experience, but it’s so much better when there’s concrete data to back it up.

That being said, nothing worthwhile comes without risk. Here are a couple of risks you should keep in mind when it comes to KPIs:

  • There’s a small chance you’ll realize somewhere along the way that your KPIs are all wrong and don’t match your business. If you’re going in the wrong direction, it doesn’t matter how fast you go.
  • It’s easy to get carried away with KPIs without considering your limitations. Sometimes, you have to be brave enough to throw away 80% of what you’re trying to measure to really make the remaining 20% count.
  • Be prepared for some growing pains. A company that isn’t used to KPIs can have some trouble adjusting to the new system, as it is a pretty big upheaval of standard workplace politics.

Final thoughts

Companies are akin to living, breathing organisms; sometimes, all it takes to vastly improve their health is one key lifestyle change. Like a good diet, KPIs come with a wide range of benefits: a better company atmosphere, increased safety, and more satisfying results.

While KPIs may be the revolutionary future for business, it’s important to stay grounded when implementing them at your company. The results might not be immediately obvious, but with time and perseverance, KPIs can make a world of a difference. With their help, you have the potential to reach the stars—you just have to take your time preparing for liftoff.

Like we said, we can’t exactly find and implement your KPIs for you, but we’d be more than happy to conduct discovery workshops with you to help you flesh out your product vision. We also offer plenty of other services to meet any software development needs you may have. Just tell us about your project and we’ll take it from there!