Key Performance Indicators (KPIs) allows companies, departments, and teams to assess their overall performance over a period of time. Such metrics are usually inner looking and are associate with factors that are important to the business, for example: revenue, customer retention, net sales, and so on.
KPIs are often used to quantify the success and effectiveness of an individual, project, team, department, or even entire corporation. As such, they can directly impact incentive mechanisms and consequently, employee behaviour when extensive emphasis is placed on hitting and improving upon KPIs. Depending on the type of KPI, incentive structure and expectations, employees may feel pressured to squeeze more desirable metrics and may resort to negative/ unethical behaviour to achieve said outcomes. For example, Wells Fargo, a major financial institution was caught in a scandal where some employees illegally falsified customer accounts and created over 2 million fake bank accounts to reach companies KPIs and compensation structures. Once it was found, it led to a government settlement of US$3 billion (NYT).
On the other hand, Customer Performance Indicators (CPIs) have been identified by some as powerful predictors of growth (HBR). CPIs are customer-centric metrics that allows the organization to track the outcomes that are deemed important to the customer. Such parameters are put in terms that are meaningful to customers, for example: instead of “time to receive quote”. Given the fact that CPIs are often related to customer experience, they can directly impact KPIs. For example, Quality of Purchase Experience could be considered a CPI in a store and it can positively affect Sales Growth, a KPI, should customers continue to choose to purchase at certain location given the high CPI.
As explained in the article, “The Most Important Metrics You’re Not Tracking (Yet)” customers, and individuals at large, always have a purpose (or problem or need) and an expectation of how it will be solved. For companies that claim to put customers at the center of their operations, such metrics are paramount for client satisfaction – and tying them back to KPIs ensure that sound business judgement is employed throughout operations.
In general, Performance Indicators (PIs) provide a means to quantify current and past performance associated to a company, department, team, or individual. Further, they also provide clear insight into goals and objectives to be achieved. They need to be clear and quantifiable. It is quite challenging to set an objective and not provide clear parameters that quantify the objective.
For example, saying that “sales need to increase” can be an ambiguous objective. It leaves room for interpretation as one might assume that an increase in the absolute number of sales satisfies the requirement – even if the total net amount of sales might result on being lower than what was previously reported. However, when an objective is directly tied to a PI, goals become clearer and are easier to achieve. For example, by stating “increase the number of new contracts signed per period by 5%”, the goal becomes more actionable. Evidently, other considerations such as SMART goals need to be taken into account when drafting actionable goals.
As it is widely known, PIs can be specific to an industry, department, team, or even an individual within a team. As such, blindly tracking trendy PIs may not award the best measurement of success for the intended purposes.
Additionally, the idea of tracking CPIs as opposed to KPIs can be alluring and it makes a lot of sense for customer-centric companies or customer-facing departments and teams. However, even in customer-centric companies, there are certain situations in which it is necessary to focus on improving KPIs to increase customer satisfaction. For instance, customers do not care about keyword ranking, but that is an important metric to track if you want customers to find your products on the internet.
Certain KPIs can also give important insights into CPIs and overall customer behaviour. For instance, leads/ conversion rates may directly speak into the likelihood of which a customer visit to a website transitions into the buying stage. If conversation rates are suboptimal when compared to the industry (leave aside other factors), it might prompt the business into pursuing more research on why customers don’t feel enticed to make purchases.
When deciding on which type of PI to track, it is important to critically assess the need and why such metric is being tracked. Is it to have a better sense of what drives growth in the company? Is it to understand how a department is performing at a point in time? Most often, it is associated with improving a certain metric or achieving a certain goal. In that case, specially in customer facing teams, there can be benefits in tracking CPIs and KPIs.
By tracking CPIs (metrics that are of importance to customers) businesses are able to better understand the correlation between such numbers and KPIs, customer’s desire, and some of the factors that influence their purchasing behaviour. All valuable data that can assist organizations in enhancing the overall quality of their service.
As mentioned previously, the decision of tracking a specific KPI or CPI needs to be critically assessed. Such metrics are unique to the functions within a team. For instance, even in the HR department, the metrics tracked by the Compensations and Benefits team can be completely different from that of the Employee Relations team. The same observation is valid throughout the organization. Below are some best practices to be considered when deciding which and how to track KPIs:
Performance indicators are important to measure the overall productivity and effectiveness of the efforts employed by individuals, teams and departments. However, it is also important to take into consideration the context in which the PIs and expectations are being deployed.
For instance, during times of hardship and constant change, such as the COVID-19 pandemic, it is important to understand that external factors may impact internal achievement and overall performance. Further, as external pressures occur, KPIs may need to be re-evaluated to match current goals and strategies. For example, during the COVID-19 pandemic, some departments may have set goals with transitioning their workforce to remote working which meant that some internal KPIs may have changed to reflect new goals or needs that were brought upon them due to external conditions. As such, PIs can be contextual not only to the function, but also to the environment in which they are set. Understanding the incentives, they create in the workforce and how it translates into operations and service quality is paramount to overall success.
The opinions in this article is of the authors and do not reflect clients or other’s views.
At challenging times such as these, it is important to take a broad view to understand certain factors that have incited drastic changes across different countries and institutions in order to create a robust system that can help to alleviate the effects of future possible disruptions.