Measurement is important in many areas of business and this is why KPIs are so useful. The area of business that is in most need of measurement is performance because this provides data that can help direct the efforts of the management. If a company does not clearly know if they are performing well or poorly they won’t be able to properly develop a winning strategy for success.
So What are KPIs?
KPIs refer to Key Performance Indicators (the 5th and 6th definitions of this KPI page). These indicators can actually relate to a broad range of different measurements and the ones that are selected will very much depend on the needs and wants of a company. Some companies will have different priorities in regards to KPIs and this will determine what they measure. For example, one company might decide that the key performance indicator they are most interested in is the speed by which their goods reach the customer; this could be particularly important for some type of online business.
The purpose of KPIs should be to provide quantifiable data that can be used to make decisions about the long term strategy of the company. For this reason it is very important that the key performance indicators that a company chooses are the correct ones. Just because certain KPIs are suitable for one operation does not mean that they will be the right choice for another one. These need to be measurements of those parts of the business that are appropriate for this type of measurement and the data provided should be such that it can be used to somehow help increase profitability or efficiency. If the data provided doesn’t provide something that is usable then it is just a waste of time.
KPIs can involve different types of measurements. It could be a direct measurement such as the number of customers who have provided repeat business or it could be something like the responses of customers to a survey of their opinions — for example, a customer satisfaction questionnaire. The data that is used for the KPI does not matter so much so long as it is quantifiable.
The Limits of KPIs
KPIs can provide some very worthwhile data for a business but there are limits to the effectiveness of this type of measurement. There are many factors that the business won’t be able to measure directly, but these will have an impact on how the company performs. For instance the ability of the customer to purchase items will be influenced by a lot of external factors that it would not be under the control of a company trying to sell them something.
Key performance indicators are very useful in business and most companies will use them as a means of charting their progress and planning for the future. They are not only useful for the managers of a business though, but can also be of value to those who are considering investing in that business — if you want to put your money into such a business you will want to know a bit about how it is performing.