What is a KPI? A Definition and Examples.
A key performance indicator (KPI) is defined as a measurement used to analyze and track the performance of business operations over a set period of time. KPIs are often expressed as ratios or percentages. These measures represent how well an organization, department, work group, product, or even an individual employee is performing.
W. Edwards Deming once said, "An operational definition is a procedure agreed upon for translation of a concept into a measurement of some kind." That's a complex statement to make a simple point. What Deming meant, in layman's terms, is that the end result of any work output should be quantifiable. You can't measure improvement without a baseline against which to compare. This is the bedrock of data-driven improvement. It's also why key performance indicators are so valuable. They help businesses establish and move toward short and long- term goals.
KPI measurement isn't a new business management fad or trend. Business measurement has recorded history starting in 1494. An analysis of Google search history for the term "KPI" shows its constantly increasing relevance.
The scope of key performance indicators varies from business to business. Even direct competitors within an industry are likely to focus on different sets of KPIs tailored to their specific business strategies and management practices.
For example, while stock price per share is the most widely accepted KPI for public companies, a privately held startup may instead focus on the number of new customers each quarter ornumber of sales. A business that offers a subscription-based service, like many SaaS businesses, may be most concerned with their churn rate. A retail or e-commerce brand, however, concentrates on order picking accuracy or distribution center expense as a percentage of revenue. Each business needs to choose KPIs that fit their needs.
The value placed on a certain KPI and how closely those measurements are monitored also likely differ within the same organization. For example, a CEO might consider profitability the pillar KPI of his company. But the vice president of sales may be more concerned with the SG&A expense as a percentage of sales KPI or how many sales his team lost due to low inventory or product per month. And a human resources executive may be more concerned with cost per hire or even turnover rate. These metrics are very different. But each can play a significant role in improving business operations when used effectively.
Common KPIs & Metric Definitions by Industry
Support Group Operations
General Line Groups
Supply Chain Operations
What is the Difference Between a Metric and a KPI?
"All KPIs are metrics, but not all metrics are KPIs." This may sound ambiguous, but we'll explain exactly what this means and why it's important to your business that you understand this distinction.
For the purpose of this discussion, we will simply define a metric as anything in a business that can be measured, a collection of information or data that is related to an item, process, or outcome. You can measure anything that you want to as a metric, but measuring at random won't reveal valuable insights about the performance of a business, process, product, or person. A metric by itself is just a captured number that represents information about a business function, it needs more framework around it to be useful for improvement initiatives.
A Key Performance Indicator is a metric with context, how the metric applies specifically to your business or industry, that is critical to operations. For example, a metric could be sales, revenue, number of customers, employee sick days, or any data point that a business decides may be useful in forecasting. The next step is determining how the metric chosen relates to your business and if it is crucial to track, this is how simple metrics become important KPIs.
Two metrics that we will discuss and turn into KPIs are below:
- Number of Pencils
- Number of Bank Accounts
The metrics may seem very basic, but with a small tweak, even the most inconsequential sounding metric can become critical. Let's review how a KPI is different from a metric, and then transform the above metrics into KPIs. But first let's dive into details about KPIs.
A Key performance indicator has many distinctive traits when compared to a single metric. One example is that KPIs are typically a combination of two or more measurements, such as "revenue per quarter," which shines a spotlight on specific results for the purpose of evaluating these numbers over time. The differences between metrics and KPIs doesn't just stop there, metrics lack focus, timelines, and aren't prioritized.
Other defining characteristics of a KPI include:
- A KPI is imperative and central to a core business strategy
- A KPI is the subject of a business issue that needs attention, correction, or adjusting
- A KPI is a combination of metrics
- A KPI is time based, such as daily, monthly, or yearly
- A KPI is "key" and prioritized over other measurements
- The KPIs a company chooses to measure can change over time as business needs shift
Key performance indicators go on to make that simple metric assist with decision making, letting you know if you're making progress towards your pre-defined goals or not, and by how much. Metrics like the two listed above, can turn into KPIs as soon as you put them in the context of your industry, organization, departments, etc., and add a denominator. This is why KPIs are often represented as percentages and ratios, using the denominator to normalize and bring context into how well something or someone is performing.
Now let's review our previous two metric examples, add some context, and a denominator to show how to make KPIs out of basic metrics.
Metric vs. KPI Example 1: Number of Pencils
At first, this metric might seem completely random and not applicable to you. If you work solely on technology or if your company manufactures software, there is no reason for you to measure this.
But, if your company manufacture pencils – this becomes one of your most important metrics. By applying industry context, a basic number can become relevant and potentially important. The next step is adding a time frame to our metric to give it context.
Add a denominator – "per factory per month".
The metric now becomes the Key Performance Indicator: "The Number of Pencils Produced per Factory per Month". This KPI would help measure pencil inventory for accounting purposes or be a measurement to help benchmark pencil factories and compare how each factory is performing. From there, you can use this KPI to further pinpoint what it might be that is causing a factory to underperform, allowing changes to processes that will boost future numbers for all factories.
Metric vs. KPI Example 2: Number of Bank Accounts
A regional bank will be focused on the amount of bank accounts that it manages, but context is equally important in this example. The type of bank account is critical–are they retail or business bank accounts? Are they new bank accounts or existing accounts? Just like the previous example, we added context of industry to further define the metric to fit the company demands.
A denominator is once again added to give the metric a measurable time frame and defines who is being measured as well – "opened per branch employee per month".
The final KPI is "Number of Bank Accounts Opened per Branch Employee per Month". This KPI tracks productivity of branch employees and can be used by bank branch managers to measure their employee performance. Properly utilizing this KPI can help managers train employees further, if they require it, and they can use the KPI to boost morale by letting employees know how well they are performing.
Why is knowing the difference between a KPI and a metric so important?
Many managers and employees have trouble differentiating a Metric from a Key Performance Indicator, and this makes it difficult for businesses to set new goals or prioritize existing goals. With the amount of data available to track and monitor it's easy to fall into the trap of thinking that everything must be measured. In reality the majority of metrics are distractions. Metrics and key performance indicators share similar traits, but the main difference is that a KPI is tied to a specific operational strategy, so be sure that you are tracking KPIs and not basic metrics that are lacking necessary context to your business.
How to Format and Define KPIs for Analysis
Standard formatting of KPIs is critical for effective analysis. A standard KPI format allows for consistent and well-informed decisions about how to measure performance across the organization. Deciding which KPIs to implement requires uniform KPI definitions, a documented rationale for each KPI, and calculation rules with concise formulas. Without these crucial elements, decisions about what KPIs to implement are likely to be made as one-off choices rather than as part of an organized approach to enterprise-wide performance measurement. Properly formatted KPIs also help to identify internal raw-data sources and allow for a nested hierarchy of KPIs down to the front line of the organization.
The following how-to guide (with examples) explains how and why KPIs should be formatted and defined in a standardized way. This standard approach ensures that each measurement can be understood and used by anyone in the organization, from executives to frontline management.
Best practice KPI formatting and definitions include 9 characteristics:
Unique KPI Identifier Number – Assigns a unique identifying number to each KPI on your list.
Some KPI projects start as an attempt to simplify and reduce an excessive number of existing KPIs. Others begin with a "clean sheet" in an organization with few existing metrics. Regardless of your starting point, numbering KPIs is imperative to managing an inventory that could easily be hundreds of KPIs long.
Individual KPI Title – Describes the KPI clearly and succinctly.
Organizational area of KPI – Identifies the operational department, functional group, or business process the KPI monitors.
To get a quick overview of measurements by business area, KPIs must be organized by the department, group, or process they measure. Some metrics may cover the entire business, but most will nest in distinct organizational areas. The 80/20 rule applies to KPIs: 80% of KPIs will be at the departmental and process level, 20% are at the enterprise or executive level.
KPI Definition — Provides a simple, one sentence statement of the KPI.
Each KPI definition should be no longer than a sentence and allow the reader to quickly understand what the KPI measures. The work product (or "output") should be identified, as well as the organizational area producing the work.
KPI Type – Categorizes the KPI into one of five major KPI types:
A. Volume – the raw amount of throughput or work products
B. Productivity – work volumes processed over time (per employee or department)
C. Service – metrics related to customer-expected cycle times and standards
D. Cost – company expenditures at an individual unit level (typically by work product)
E. Quality – error rates, rework, etc., that track the quality of finished work products
Directional Significance of KPI – Indicates whether the numerical output of the KPI should be high or low.
Bigger isn't always better. End users of KPIs need to know whether high or low values indicate high performance. For some KPIs, a high value is better: New Loans per Bank Employee, Calls Handled per CSR, etc. For others, however, a lower value is better: Customer Complaints per Day, Average Handle Time, etc.
Determining whether a high or low value is better is not always straightforward. As a simple rule, ask yourself whether more or less of the item being measured will improve performance.
Why it Should be Measured – Explains clearly why each KPI should be implemented and monitored on an ongoing basis. This is the most difficult part, and you will need this information to overcome any internal resistance.
Each industry generally has a set of standard measurements. Not every company, however, tracks the same KPIs. A particular business may have a pressing need that requires immediate attention, but as business needs change, the same KPI may no longer be at the top of the list.
KPI selection is often subjective and requires internal debate among peers and management. To make conversations about KPIs constructive, and to keep meetings focused and more objective, KPI rationales and reasoning should be thoroughly documented.
Tips for documenting KPI rationales:
- KPIs range from enterprise-level to process- or employee-level importance—make sure the rationale is tailored to the appropriate level of measurement
- Document the reason for measuring the "leading" input of each KPI and how it can be affected by changes in work volumes
- Document the "lagging" output of each KPI to educate end users about the ideal result or goal of the process being measured and how it can be improved with different input levels
- Focus on describing cause and effect—each KPI can accelerate root cause analysis
KPI Calculation Rules – Describes, in a narrative format, how to determine each numerical value included in the KPI.
Numerators and denominators are identified and defined. Details of what is included in each value ensure an apples-to-apples comparison across the KPI.
KPI Formula – Provides a simple, inarguable formula that includes the numerator and denominator of the KPI. The formula for each KPI outlines a mathematical relationship of two operational metrics.
The infographic below provides another example of how multiple standardized definitions of KPIs should look.
Benefits & Advantages of KPIs
Envision attributes you'd like your organization to have. That list might include things like productive employees, satisfied customers, and increasing profits. But how would you gauge your team's performance on these? How do you track progress and improve performance? By implementing KPIs.
Key performance indicators provide vital business intelligence. They monitor performance objectively. They allow apples-to-apples comparison with peers. They can pinpoint improvement opportunities. And they provide hard data to help generate internal buy-in. The benefits and advantages of KPIs are often overlooked. Benefits and advantages are defined as desirable, meaningful gains from implementing KPIs.
Defining and measuring valuable KPIs creates a baseline against which to measure future results. Continuous monitoring lets you know what's working and what isn't. It might even explain why your customers aren't as pleased as they should be.
"How can implementing KPIs help my business?"
Here are ten benefits and advantages of implementing KPIs:
Eliminate Waste - Don't invest time and effort on activities that don't provide value. KPI reporting will help identify and reduce wasted effort. This lets you redeploy capacity to more valuable work activities.
Define Expectations - Create performance standards and baseline expectations for your employees with KPIs. Measure current performance and set aggressive but achievable targets to give employees a clear goal.
Benchmark Performance - After KPIs are defined, tracking and keeping them updated provides continuous performance data. Use this information to measure against current goals and external peers.
Quantify Results - Putting a number on an achievement speaks volumes. With this number, you can report results to management, shareholders and your direct reports.
Improve Performance - Updated performance dashboards with effective KPIs will make meetings more effective. Focus on what's most important to streamline processes and boost output.
Increase Market Flexibility - Current-state data can provide insight into your marketing efforts. These allow you to allocate resources to a new campaign or training to better equip employees to excel.
Provide Effective Performance Feedback - Managers can use key performance indicators to create an easy- to-follow roadmap to success. This enables continuous and focused feedback to employees. Clear objectives, standards, and criteria will help to improve your team's engagement.
Pre-empt Problems - With consistent, up-to-date KPI data, you can anticipate problems in a process or activity—and stop them in their tracks. Don't let unmeasured activities ruin your business.
Improve Accountability - Measuring activities and monitoring team and employee performance enables proactive management. This provides objective data to hold teams accountable for success.
Generate Motivation to Succeed - Routine, consistent feedback supported by data shows that employees' efforts are recognized and rewarded. This will motivate them to reach daily goals.
These are only some of the benefits that using the right KPIs can deliver for your business. Performance reviews and operations reporting will be a breeze with defined, measured and reported KPIs.
Now that we've discussed benefits, make sure you look at the few challenges KPIs can present. Doing so will help to ensure that you implement effective KPIs in your workplace.
Disadvantages & Problems with a KPI
KPI implementation sounds straightforward. Measuring things, after all, should be simple. But any business improvement initiative will encounter unexpected problems. Steep learning curves, for example, often accompany new business intelligence technology. Or you may find that employees quickly figure out how to "game the system" by manipulating KPIs. This section of our KPI guide provides an overview of typical disadvantages and problems with KPIs.
A disadvantage of a KPI is defined as an unfavorable result of tracking or measurement that impedes success. These typically require corrective action to ensure that business objectives are achieved. One disadvantage of KPI implementation is that not every KPI is objective. Subjective KPIs—although often critical metrics—are more difficult to implement. These include such measures as the customer experience. Used incorrectly, information based on opinions can be misleading, distort data and cause misinformed business decisions down the line.
The use of subjective data, of course, isn't the only problem you can face while measuring indicators. Another is simply focusing on the wrong KPI. This can reduce the quality of work or negatively impact service levels, as employee goals aren't aligned with ideal outcomes. A narrow concentration on cycle time, for example, can jeopardize quality. Your work products may be finished faster, but that's no help if half of them have tons of errors or defects.
KPIs can also be detrimental to a business if they aren't actively managed after being implemented. One of the nation's biggest banks learned this the hard way in 2016. Wells Fargo was focused on efforts to increase the number of new accounts opened. This, however, led employees to create fraudulent accounts. Ultimately, the narrow view of KPIs caused the bank to damage their brand, incur hefty fines, and fire thousands of employees involved. Great numbers don't matter if they aren't backed up by real performance.
Here are seven problems caused by hastily implemented KPIs:
Ambiguous KPIs – Key performance indicators that lack clear definitions and parameters fail to provide information that supports decision making. KPI definitions for the same measurement that vary based on the department or employee cannot effectively compare performance and identify improvement opportunities.
Data Manipulation – Some KPIs measure inputs, such as the Number of Incoming Calls for a call center. These, however, are subject to easy manipulation. For example, a call center rep could increase the number of calls handled by simply hanging up on customers. That would obviously increase the rep's performance for this KPI, but it would also drastically reduce customer satisfaction. KPIs must be balanced to provide an accurate view of overall performance.
Employee Confusion – Employees need to understand their KPIs. As KPIs are implemented, make sure that everyone knows precisely what is being measured, as well as how and why. Educate your employees about the goals of KPI implementation and how to interpret and improve their performance.
Wasted Investment – Implementing, monitoring, and reporting KPIs is an investment. But it can be wasted if management doesn't effectively follow up on the results. Targeted follow-up is crucial for improving team and individual performance and ascertaining whether targets need to be adjusted. Measurement with no plan to improve simply isn't worth the time or effort involved.
KPI Overload – The "key" in key performance indicator means "critical to business operations." More isn't always better. Make sure that the volume of KPIs for any particular business group or process remains reasonable Tracking hundreds of KPIs would not only be taxing for management but also counterproductive – and expensive. Every KPI being tracked costs time and money to maintain.
Data Integrity – Data must be recorded and maintained accurately. Ideally KPIs should rely on a stable raw data feed. Data-entry errors or unexpected changes to performance data will reduce confidence. Employees may well feel that they have no control over their performance and that the KPIs are arbitrary.
Narrow Scope – An excessive focus on financials can generate an obsession with short-term earnings. Consequently, long-term benefits, such as customer satisfaction levels, can suffer. KPIs should provide a balanced and comprehensive view of business operations.
Always keep business objectives in mind when implementing key performance indicators. This will ensure that process goals are achieved and that quality doesn't suffer. Closely monitor and update KPIs on an ongoing basis. If a KPI doesn't fit your current or changing company goals, eliminate it.
Remember, the most useful KPIs come from joint discussions with the team and include quality and value indicators. Thorough planning before KPI implementation can help to avoid the common problems listed above. And ongoing review and adjustment can overcome any problems that arise over time.
Types of Key Performance Indicators
This section details the differences among key performance indicator (KPI) types. KPI types define the core concepts of measuring business performance. Each type, or category, includes individual KPIs that share similar attributes. Consequently, these categories serve as hierarchies and taxonomies for "storing" and sorting individual KPI measurements.
KPIs fall into four major categories:
- Industry, Business Unit, and Process Specific KPIs
- Quantitative and Qualitative KPIs
- Leading and Lagging KPIs
- Operational KPIs: Volume, Productivity, Service, Cost, and Qualitye
Each of these four types is discussed below.
Industry, Business Unit, and Process Specific KPIs
The first step in KPI segmentation analysis is to categorize individual measures at the top level of the company. In other words, adopt an industry-specific focus before drilling down to business units or functions.
What are industry KPIs? Why are they important?
Industry KPIs are defined as high-prioritys measurements of company performance across a set amount of time. These are specific to business products, processes, and organization structures in ethe same industry. If you think of them as "industry-specific KPIs," it'll help you remember the definition. For example, industry-level KPIs for Amazon are comparable to those for big-box retailers and e-commerce companies. Instagram's revenue growth can be compared to Snapchat's. Banks have product mixes that are roughly similar. Their KPIs are thus generally categorized in the same way. So, remember: "Big, macro metrics; same general industry." Industry KPIs are the kinds of metrics featured on Bloomberg or Morningstar.
Business unit and process specific KPIs are one click down from top-level industry KPIs. These are defined as performance fmetrics for departments, teams or employees in a certain business unit of the company. Performance includes the efficiency and quality of operations, processes, customer service, individual employees, and others. tThese KPIs can be used, for example, to measure mortgage lending (e.g., mortgage loan pull-through rate, mortgage loans closed per loan officer, mortgage closing cycle time, etc.). As their name implies, they're specific to a particular business unit or process.
Qualitative & Quantitative KPIs
Which is more useful: a person's subjective opinion about business performance or objective statistics? The answer, of course, depends on what type of insights are needed. For certain aspects of business performance, opinions are extremely import. This is especially true for understanding the customer experience or brand perception in the market. But qualitative analysis remains less prevalent than quantitative. Job positions for "qualitative analysts" are relatively rare. Positions for quantitative analysts and statisticians, however, have been around since the 1700s.
A qualitative KPI is defined as a metric, or measurement, derived from judgments, opinions, and experiences. These are not fact-focused. Instead, they are descriptive, experience-based, and subject to individual perceptions. They typically rely on assumptions and personal bias. Internet review websites are perfect examples of qualitative information. The written, open-ended opinion of a reviewer provides qualitative data. Qualitive KPIs are typically secondary to those backed up by objective facts. Nevertheless, these have become increasingly important with the growth of social media. Although subjective, they still provide valuable insights and perspectives that quantitative KPIs cannot.
Examples of Qualitative KPIs include:
- Reason customer signed up on website
- Manager performance audit
- Twitter comments
- Customer perception
A quantitative KPI is a numerical, mathematical measurement derived from analysis of raw data. These are more commonly accepted as inarguable fact than qualitative metrics. This is because they are generated by statistical analyses. Quantitative KPIs are structured and based on a measurable "quantity" of data. Recent trends in "big data" analysis focus almost entirely on using quantitative information to inform business decisions. Examples of quantitative information include how many times a customer ate at a restaurant during a year or the average amount of money they spent on each meal.
4 Additional Examples of Quantitative KPIs:
- Number of new customers who signed up on website in one month
- Number of calls handled per day
- Sales per employee per quarter
- Percentage of application reworked due to error
Qualitative and quantitative KPIs can complement each other in a symbiotic fashion, enriching a story and bringing it to life. For example, a high error rate for insurance applications (quantitative) can lead to negative reviews for the company on social media sites (qualitative).
Two questions provide a good rule of thumb for determining whether a KPI is qualitative or quantitative:
- Are you attempting to measure perceptions, experience, or the likelihood of a customer recommending your business? These are qualitative KPIs.
- Are you trying to measure statistical results, such as how long it took the average customer to receive their order or how many times they called customer service? These are quantitative KPIs.
Leading & Lagging KPIs
Every "output" (e.g., product, service, transaction), requires a corresponding "input" to complete it. This input "leads" the output. Conversely, the output "lags" the input. Think of a cause and effect relationship. Leading KPIs (i.e., causes) influence the result of lagging indicators (i.e., effects). Lagging indicators can therefore be analyzed to adjust leading indicators to change future outcomes.
A leading KPI is defined as the measurement of a key input that influences how a process or function's output changes. Again, think of leading KPIs as the cause of an effect. They are predictive indicators in business operations and give insight into the expected output of a process. A simple example of a leading indicator is how far down you press the gas pedal in a car. Unless the car has a problem, that determines the resulting speed (i.e., the lagging indicator).
Examples of leading KPIs in business operations include:
- On-time Shipment Readiness
- Inventory Accuracy
- IT Outsourcing Expense as a Percentage of Total IT Expense
- Supplier Order Documentation Accuracy Rate
A lagging KPI is a key metric that indicates the outcome of a process. These measure how well the process is operating. Lagging indicators are reactive rather than proactive: they show the result of the problem rather than the problem itself. Everyday examples of lagging indicators include how much your monthly electric bill is after you have consumed the power, or how much gas your car used in a month.
Examples of lagging KPIs in business operations include:
- Mortgage Loans Closed per Closing Employee
- IT Support Ticket Opened per Employee
- Turnover Rate: First Year of Employment
- Health Insurance Claims: First Pass Resolution Rate
A balance of leading and lagging KPIs will help your team manage outputs and continually adjust inputs to improve results.
Operational KPI Types: Volume, Productivity, Service, Cost, and Quality
Operational KPI Type: Volume
Volume KPIs are defined as indicators of the raw amount of work input (e.g., Calls Handled) or output (e.g., Invoices Processed) handled by a company or department over a measured period of time. These may include work demand from customers (e.g., Mortgage Applications Received) or internal operations (e.g., Payroll Payments). Volume metrics vary greatly depending on industry, company size, or department size. Consequently, volume metrics are often used to derive productivity or quality metrics to give managers a better view of overall performance.
Operational KPI Type: Productivity
Productivity KPIs measure the work volumes processed by the company's operations over a defined period of time on a per unit basis (e.g., per employee, per team, etc.). Certain internal (i.e., non- customer facing) cycle times may also be included in this category because these directly influence the amount of work each employee or team can produce in a given period of time.
Operational KPI Type: Service
Service KPIs measure adherence or compliance to company- or market-defined customer service standards. Service KPIs indicate whether a particular department, team, or work task is achieving the service goals defined by management. Such KPIs may include service-related cycle times, the percentage of requests performed within a specific time frame, the resolution rate of customer requests (e.g., First Contact Resolution Rate), and overall Customer Satisfaction Scores.
Operational KPI Type: Cost
Cost KPIs track company expenditures allocated to certain departments, employees, or processes to fund the company's day-to-day operations. These KPIs can include total expenses, cost per employee, unit costs, or departmental expense as a percentage of companywide expense. Many of these KPIs target lower values (unit costs). Some companies, however, will prefer higher values for some of these metrics (e.g., Marketing Expense as a Percentage of Total Expense) to achieve business objectives.
Operational KPI Type: Quality
Quality KPIs measure the standardization, discipline, and general condition of the work produced by a certain department, team, or employee during a certain time frame. These usually include error rates, rework, or reprocessing rates. They also include inbound accuracy measurements (e.g., data quality, etc.), forecast accuracy, and other metrics that measure the overall quality of work produced by the company compared to standards defined by management or the marketplace.
How to select the right KPIs
You can generally follow a simple four-step process for choosing KPIs and ensuring their alignment with behavior and actions your company wants to reinforce.
- Refine Your Focus: Start by determining which departments will be monitored by KPIs. Begin with the work groups that are closest to the product or service you're delivering to the customer. And think big. Don't impose KPIs on groups that consist of just one or two people. Go for the broader perspective. Begin with the larger, customer-impacting departments.
- Define Your Audience: After you have selected the scope of your KPI reporting, you need to define who the users of the data will be. Executives, for example, will need to look at higher-level KPIs than front-line managers. Tailor your KPIs and the level at which they are reported (e.g., company-wide aggregation, by location, by employee, etc.) directly to your audience.
- Assess Data Availability: Before you get too excited about your new KPIs, you need to make sure you have the data to calculate the numbers and populate your reports. This is one area where you might need to get your company's IT Team involved. Go to them with your KPI definitions well-defined so they can help you identify the elements you need to calculate and pivot each one.
- Validate & Document KPIs for Reporting: If you want your audience to use your KPIs, it's important to get their input and buy-in. Before and during the process of selecting KPIs, sit down with key stakeholders to validate the direction you're heading in. If you fail to get their input, your KPI reporting effort may be doomed to fail from the start.
Eight Examples of How Big Businesses Implemented KPIs
There is no shortage of half-baked of KPI examples posted all over the internet. These KPI examples are generally posted by companies that actually know very little about KPIs and use them for the sake of web traffic generation to sell products like dashboard software.
When looking for examples of KPIs, having lists of examples is helpful (like from our KPI encyclopedias – Sales KPIs, Banking KPIs, Insurance KPIs, Supply Chain KPIs, Marketing KPIs, Customer Service KPIs, + more), but reviewing real life examples of how companies successfully implementing them can help frame your KPI efforts even more. Check out these examples and case studies of how businesses implemented KPIs in the real world.
Case Study Examples of KPIs in Insurance
Aetna Insurance – Customer Experience, Service Satisfaction of Doctors, and Cost Related KPIs
Headquartered in Hartford, Connecticut, Aetna is a managed health care company with a 165 year history, offering insurance products and services. The company reports $60.54 billion in 2017 annual revenue.
A challenge insurance companies often face is maintaining a measurable approach to product delivery and customer service. In April 2016, Aetna announced its commitment to transparency for customers and discussed two platforms contributing to that effort: Member Payment Estimator and WellMatch - a tool for comparing doctors and medical procedures using data such as costs, quality ratings, and patient reviews.
In a case study published by Alpha, a developer of a software platform for management teams, seeking data-driven insights on their customers, products and new markets, the technology firm describes how it helped Aetna optimize its product KPIs.
Through WellMatch, the insurer targets 35 different user categories including healthcare providers, Aetna members with specific prescriptions and healthcare plans as well as benefits managers. Etugo Nwokah, Chief Product Officer at WellMatch, aimed to optimize customer facing product KPIs such as usability and usage, identify barriers and opportunities for improvement.
"We had a lot of over-grazing because of all the stakeholders who want their opinion and their content to surface when users log in. So, we tested the content in a bento box style, believing that it would be digestible and bite sized. What we found with Alpha is that only 25% of users understood what was going on. Most users were going to the search bar because they didn't get it. So we had to go back to the drawing board to make it more action-oriented, rather than surfacing content that we believed would be relevant."
- Etugo Nwokah, Chief Product Officer at WellMatch
As a result of implementing an enhanced workflow model based on data analytics and KPI tracking, Alpha reports that Aetna now runs more than 100 experiments each year, allowing for more efficient methods of optimizing product related KPIs and the overall customer experience.
Crystal & Company Insurance – Financial KPIs and routine accounting metrics reporting implementation
Approaching its 85th year of operation, Crystal & Company is a New York-based insurance company with a staff of approximately 450 and clientele spanning across multiple industries including nonprofits, financial institutions, real estate and technology.
The insurance firm encountered challenges when attempting to conduct analyses of its finances. The company had relied on basic database programs and spreadsheets to capture and track data. Valuable data analysis was halted when their 2GB data limit was surpassed.
These constraints negatively impacted the firm's ability to properly monitor KPIs as well as progress toward long term strategic goals. The firm selected a Corporate Performance Management (CPM) software platform from Prophix to help address this challenge.
According to a case study, implementation of the CPM platform enabled Crystal & Company to build a financial model responsible for consolidating information from all of the company's other data sources. Monthly KPI reports and other metric forecasts were developed from these models.
KPIs implemented include:
- Employee level performance KPIs
- Headcount forecasting KPIs for capacity management
- Overhead cost KPIs
- Commissions KPIs
- Tax forecasting KPIs
- Write-off KPIs
Prophix notes that the insurer had three main accomplishments from the KPI and updated performance management implementation; increased profitability, decreased cost, improved employee productivity.
Manufacturing KPI Case Study Examples
McKee Foods Corporation – Food production and logistics KPI measurement
Established in 1934 and based in Collegedale, Tennessee, the McKee Foods Corporation is a privately-held, family owned company and its leading brand is Little Debbie® snack cakes. With an estimated annual revenue of $1.3 billion, evidence suggests that KPIs have played an important role in operations for the Fortune 1000 manufacturer of consumer products.
According to a case study published by River Logic, a Dallas, Texas-based technology firm specializing in analytics, McKee has used the tech firm's Optimization and Modeling solution to implement KPIs into company operations.
The process begins with the gathering, structuring and cleaning of product data to feed into the models. Data are imported from multiple systems including the company's Enterprise Resource Planning (ERP), Manufacturing Execution System (MES) and product demand forecasts built from spreadsheets. Ongoing and routine data analyses now offers ongoing KPI monitoring.
River Logic reports that five models were developed which included the following:
- A long-range planning model to evaluate strategic KPIs (e.g., capacity, capital expenditures and product portfolio)
- A medium-range planning model to measure inventory KPIs and tactical issues, including which plants should produce what volume of product.
- An operational planning model to measure production KPIs, sequencing, and shift schedule KPIs
- A distribution model to measure the distribution strategy KPIs
- A truck loading and handling KPI model to maximize efficiency and minimize costs
At the time the case study was published, the tech firm claimed that the "medium-range" and "truck loading" models had delivered an "ROI of 1,000 percent to 2,000 percent."
Sample insights generated from KPI analytics implementation include:
- Moving product manufacturing to another plant would generously offset additional transportation expenditures - revenue vs. costs metrics measurement enabled this decision to be implemented.
- As a result of the optimized efficiency and KPI monitoring, River Logic reports that McKee accrued $5 million in profit improvement.
Arla Foods – Marketing Operations Analysis KPI Implementation
Headquartered in Viby, Denmark, Arla Foods has been described as the largest manufacturer of dairy products in Scandinavia and the 6th largest in the world.
As described in a case study, Arla sells its products globally under three different brand names and the company was challenged with maintaining individual brand appeal while achieving consistent messaging. A related challenge was how the brand would measure analytics to monitor the Key Performance Indicators for each brand in a standardized way.
The company worked with data analytics company Percolate to gain actionable marketing insights from brand data KPIs. The platform's dashboards allow for the Arla's data to be easily measured by multiple team members.
By consolidating the marketing data, markets can be more easily compared to each other based on a standardized marketing KPI framework. Across the 30 markets where Arla's products are sold, using the insights from KPI analytics platform, marketers were able to save one of its brands $50,000 on a single marketing campaign.
Pharmaceuticals KPI Case Study Example
Aenova – Operational KPI implementation
Headquartered in Munich, Germany, since 1949 the Aenova Group has established itself as an international company in the pharmaceutical and healthcare industries and one of the largest contract manufacturers in Europe. With over 4,300 staff and a reported annual revenue of 775 million EUR (approximately $881 million USD) The company’s portfolio of services spans the value chain for the development and production of dietary supplements and pharmaceutical drugs.
At the April 2016 meeting of the European Pharma Congress, Dr. Andreas König, Senior Vice President at Aenova, presented a case study on his company’s implementation of KPIs. He also discussed the U.S. Food and Drug Administration (FDA) initiative to develop guidelines and to use KPIs for planning their risk based inspections. Thus the implications for the pharmaceutical industry as a whole are significant.
According to König, the goal is to identify barriers to quality assurance and manufacturing much earlier in the process.
In his case study, he highlighted the following "core" KPIs which are currently being implemented at the corporate level:
- Deviations [Muda (activity not creating value)]
- RFT [(BRR, Rework/Reject) Muda]
- Complaints (Customer perspective on the company)
- CAPA (Activities agreed on)
- Changes (Workload indicator)
König shared how KPI data is aggregated at different levels throughout the organization. For example, at the level of the Site Quality Board, there is a systematic data collection process. Essential statements are consolidated and transferred to the Quality Leadership Team. Finally, the data is presented in "charts and metrics for decision-making" for Aenova's Quality Board. König emphasized the importance of establishing a robust feedback process in order to draw, actionable and appropriate conclusions from the full process.
Retail Industry KPI Case Study Example
Pep Boys Auto – Measuring the impact of training with operational KPIs
Founded in 1921, Pep Boys is an automotive supply retail chain and on-site service facility with nearly 800 stores and 20,000 associates nationwide.
As reported in a case study, in an effort to improve the overall performance of its distribution centers, the company implemented an automated personal training and awareness platform called Just In Time Training™ developed by CoreCulture. Key performance indicators identified for improvement included: Order Accuracy, Damages, Store Satisfaction Rates, Order Fill Rates and Safety.
The goals of implementing an automated training tool included engaging and educating employees on how to positively impact the KPIs of their distribution center and to establish operational standards in order to introduce friendly competition among the centers.
After implementation of the training platform and KPIs, the company noted a 30 percent improvement in Key Performance Indicators such as Order Accuracy, Damages, Customer Satisfaction and Safety.
Retail Banking KPI Case Studies Examples
Bank of America – Customer Journey and Cross Selling KPIs
Headquartered in Charlotte, North Carolina, Bank of America is an international financial institution with an estimated 67 million clients and approximately 4,400 branches. For 2017, the company reports an annual net revenue of $88 billion.
The bank was struggling to improve their customer retention rate metrics and leverage the findings of the vast amounts of data from their small business and individual clients. A rep from the bank quoted in Forbes indicated that the implementation of an improved KPI analytics solution enabled to the bank to connect measurement of their diverse sales channels, track customer engagement and encourage follow-through.
"With big data technology, it can increasingly process and analyze data from its full customer set. The various sales channels can also communicate with each other, so a customer who starts an application online but doesn't complete it, could get a follow-up offer in the mail, or an email to set up an appointment at a physical branch location."
KPIs that were implemented during this effort included:
- Customer journey KPIs
- Customer attrition KPIs
- Branch cross-selling KPIs
Bank of America even reorganized its operations structure to better capture big data for more effective KPI measurement. A big data and KPI center of excellence now maintains these efforts on an ongoing basis.
Wells Fargo – measuring customer website interaction KPIs to help design a new portal
Headquartered in San Francisco, CA, Wells Fargo is an international financial services institution servicing over 70 million customers at more than 8,700 branches. The bank reports $22.2 billion in net annual income for 2017.
The bank grappled with an inefficient and expensive method of pooling meaningful insights from 70 million customers, in addition to data cleaning, combining and categorization. The categories of customers were also diverse including both individuals and institutions.
Instead of having to invest in expanding technical staff, the bank chose a business intelligence solution to achieve its KPI analytics goals and to implement measurements needed to design a new customer portal. According to a case study, Tableau was selected for analytics support which helped the bank make three main improvements:
- Transformed complex and disorganized data into actionable insights
- Strengthen the bank’s capacity to interpret analytics
- Impacted customer banking portal redesign decisions using hard KPI data
How to improve operations using kpis
Here are some keys to applying KPI reports to improve day-to-day operations:
- Set targets based on best-demonstrated historical performance. If it had actually been achieved before, then it's clear that it's quite possible to do it again. Seen from the other side: If a goal is unreachable or unclear, performance can suffer. Not to mention morale.
- Avoid subjective performance management. When you have unbiased, measurable data to support any findings of shortcomings, employees will understand that you're not being swayed by emotions, rumors, or gut feelings. You'll be perceived as fair, and the KPIs will be used as true motivators.
- Reward improvement. This may seem obvious, but note that we didn't say, "Only reward those who hit their targets." An employee who's making progress toward a stated goal is also one who needs that extra recognition, reward, and motivation. Keep them on that great path upward.
- Create action plans with achievable milestones. Understanding where an employee or functional area's performance is today, and where it should be in the future, is great. Creating a detailed action plan with observable and reachable milestones along the way is even better.
- Maintain the quality of the data and reports. Once data-collection is automated and reports get generated, it's easy to fall into the "set it and forget it" mindset. This is dangerous. None of this is carved in stone. Data should be audited regularly for quality, and report functionality should be tested to prevent any setbacks in tracking performance.
- Frequently re-evaluate best-demonstrated performance targets, or benchmarks. "Is that the best you can do?" Last year's answer may well get outstripped by this year's performance (thanks, in no small part, to your KPI-driven initiatives). In other words, as change propagates throughout the organization, performance will improve. So update your definition of "best" and keep those sights aimed appropriately high.