What are Performance Indicators?
Performance indicators are success metrics. They indicate successful ongoing performance of:
- $COMPANY at large
- Specific functional departments
- Specific subgroups or subteams
- Certain individual functions
Performance Indicators: Stable and Expanding
For the most part, $Company and functions are expected to produce “more of the same”. This is why performance indicators often the same across time periods. E.g. a SAAS startup will always be evaluated by Annual Recurring Revenues.
However, we can also expect that the number of performance indicators expands over time. This reflects increased learning across the organization. For example:\
- After a finance department discovered a large amount of unpaid bills, they added a performance indicator ‘days accounts receivable’ which would catch this issue in time if it happened again
- After a marketing department found that dwelling time on the web site predicted the quality of their leads, they added ‘average dwelling time’ as a performance indicator.
What are KEY Performance Indicators
With ever more performance indicators, there is a risk that people feel overwhelmed. Or that optimizing one performance indicator would impact so many others, that people would rather leave things alone.
To guard against this tendency, each team picks one of their performance indicators as their KEY Performance Indicator. In other words: the Performance Indicator that matters more than all the others, at least in the period under consideration.
(K)PIs, by nature, are stable metrics. They reflect all the things $COMPANY or a team has learned to measure since when they started to operate.
For example, a sales team may first only measure Annual Contract Value sold. Then they find they have too many deals fall through, and they start measuring close rate. Then they see many opportunities without traction, and they start measuring average-time-to-close. And so on.
When the list of metrics gets too long, the company and individual teams need to agree which metrics are most important. This prioritization yields the “key” performance indicators: the 2 to 4 metrics that are most important and that everybody should pay attention to improving.
Every team is expected to ensure no Key Performance Indicator gets worse, and to gradually improve at least one of them with a few percent each quarter.
When a few percent each quarter is not enough, the company or a team needs to put extra effort behind an improvement. This is when we launch a project/initiative with an Objective and Key Result.