Key performance indicators (KPIs)
What are key performance indicators?
Key performance indicators, also known as KPIs, are goals that let HR teams and managers evaluate how well employees fulfill their duties in line with business objectives. It's a great metric to help organizations track how employees are progressing toward a particular target.
Why are KPIs important?
KPIs help employees understand what's expected of them, prioritize their work items, and understand how their work contributes toward the greater organizational goals. Additionally, it helps HR teams and managers run performance reviews objectively and make fair decisions. It can also help in keeping employee performance consistent with organizational needs.
What are the four main types of KPIs?
The four major types of KPIs include:
Qualitative KPIs:
These are KPIs that can't be measured. They're subjective and help organizations understand how different aspects of their operations are moving forward. These include customer satisfaction, employee satisfaction, employee morale, and brand reputation.
Quantitative KPIs:
These KPIs can be easily measured. They make use of numbers to track how employees have achieved their goals. These include the number of new customers, revenue, ROI, and web traffic.
Leading KPIs:
These KPIs offer insights into the future performance of an organization. These include employee training participation rate, the number of demos scheduled, the number of registrations for a webinar, and ad impressions.
Lagging KPIs:
These KPIs help organizations understand their past performance so they can gauge what has been achieved and what needs improvement. These include revenue, profit margin, and churn rate.
How are KPIs set for employees?
KPIs are usually set for employees by the HR team after discussions with their managers. HR teams take into account their job responsibilities, department, company objectives, and more to set appropriate KPIs for each employee. In most situations, employees are also involved. Just like goals, KPIs need to be SMART (specific, measurable, achievable, relevant, and time-bound).
What are the most important KPIs to track?
The KPIs that an organization has to track depend on the overall high-level objectives of the organization. However, universal KPIs that every organization should focus on include:
- Financial KPIs like revenue growth, profit margin, and return on investment
- Customer-centric KPIs like customer satisfaction, churn rate, and customer retention
- Operational KPIs like the time taken to complete a process, product quality, and delivery time
- Marketing KPIs like website traffic, conversion rate, and lead generation
What happens when an employee doesn't reach their KPIs?
When employees consistently fail to reach their KPIs, organizations may take necessary actions based on their culture, management strategies, and performance review system. Some organizations may have performance improvement plans in place to address underperformance, helping employees overcome their weaknesses and achieve their performance goals. Some organizations may offer a formal warning to employees and offer feedback that can help them overcome underperformance. Some may offer mentoring, coaching, and other training programs, and others may terminate the employee.
How often should KPIs be reviewed?
It's very common to review KPIs every month or every quarter. Managers check in with employees to review the KPIs set for that particular performance period. Employees provide the necessary data that proves how they've achieved their KPIs. After this, employees and managers exchange feedback.