Key Performance Indicators (widely named in the corporate world as KPIs, because you know, everybody is too busy to say the long name), have come a long way since the emperors of the Wei Dynasty (221-265AD) started rating the performance of the official family members (Banner & Cooke, 1984, Coens & Jenkins, 2000).
Perhaps the closest thing to what we have today were those used by Robert Owen in the early 1800s (George, 1972), who monitored performance at his cotton mills in Scotland through the use of what he called “silent monitors”, small cubes of wood with different colors painted on each visible side displayed above the workstation of each employee (Banner & Cooke, 1984; Wiese & Buckley 1998).
But wait, what are KPIs?
Well, if you have been under a rock for the most recent part of corporate history, at it’s most basic level KPIs are measurable values than reflect a performance measurement -qualitative or quantitative- of a person, an area or even a company, that allows the reader to gain an accurate idea of how well (or not) is performing that thing (person, process, area, department and up) that is being measured.
In the beginning KPIs were highly appreciated in industrial contexts, and promptly implemented to measure individual performance, but in time our old friend complexity appeared, and everybody wanted a piece; this new kid in the block -punchline intended- created problems nobody knew they were looking for, and companies started collecting and reporting a vast amount of everything, and as a consequence their managers end up drowning in data and with no insights.
Then what should we measure?
That’s a difficult question, but in the end is the most important one. Is my personal belief than most of the KPIs any company will ever use must be tailored to their own needs and after that, mixed with some of most well known KPIs out there, those considered as standard across businesses and vertical segments. But to start answering the question, we can check on some of the most relevant KPIs out there in the wild, some of which are redundant and others simply show the same information in a different manner, so you have to decide which ones shown what you need:
On the side of financial interests, we have a couple of indicators than we should consider: Net Profit, Net Profit Margin, Gross Profit, Gross Profit Margin, Operating Profit Margin, EBITDA, Revenue Growth Rate, Total Shareholder Return (TSR), Economic Value Added (EVA), Return on Investment (ROI), Return on Capital Employed (ROCE), Return on Assets (ROA), Return on Equity (ROE), Debt-to-Equity (D/E) Ratio, Cash Conversion Cycle (CCC), Working Capital Ratio, Operating Expense Ratio (OER), CAPEX to Sales Ratio, Price Earnings Ratio (P/E Ratio).
There are also useful ones to help you understand your customers: Net Promoter Score (NPS), Customer Retention Rate, Customer Satisfaction Index, Customer Profitability Score, Customer Lifetime Value, Customer Turnover Rate, Customer Engagement, Customer Complaints.
And obviously there are some more to help you understand your team: Human Capital Value Added (HCVA), Revenue Per Employee, Employee Satisfaction Index, Employee Engagement Level, Staff Advocacy Score, Employee Churn Rate, Average Employee Tenure, Absenteeism Bradford Factor, 360-Degree Feedback Score, Salary Competitiveness Ratio (SCR), Time to Hire, Training Return on Investment.
And to analyze operations you can use some of the oldest a widely employed ones: Six Sigma Level, Capacity Utilisation Rate (CUR), Process Waste Level, Delivery In Full, On Time (DIFOT) Rate, Inventory Shrinkage Rate (ISR), Project Schedule Variance (PSV), Project Cost Variance (PCV), Earned Value (EV) Metric, Time to Market, First Pass Yield (FPY), Rework Level, Quality Index, Overall Equipment Effectiveness (OEE), Process Downtime Level.
But those are too many!
Yes, they are too many, and we haven’t even look into marketing, sales or environmental and social sustainability to name a few, nor we have take a look into specific fields like project management in software development (which is a totally different field to project management in construction) and something we are very interested here in SWAPPS (by the way, do you know what we do? No? Then take a look here, we do amazing stuff).
I talked about project management before, and KPIs are one of the best tools you have to monitor any kind of project, but they can be overwhelming if you don’t know what you are doing; to accomplish anything you have to sit down and think a lot about what and how you want to measure your project, your company or whatever your context is. Some of those I included in the list will be useful, perhaps some of those can achieve nothing for you, so you have to keep in mind than they will be insufficient and it will be up to you to find -or create- the right ones.