How do you measure success?

What do you estimate: How many key performance indicators are there? 300? 500? Far from it! It's a whopping 17,000! At least when you tell the author of the book KPI Mega Library Wants to believe. With this large number, the question is which performance indicators should best be used as a basis for strategic progress monitoring. There is no general answer to this question. The differences from sector to sector and from company to company are too great.

Here are a few tips on what you should always consider when choosing KPIs:‍

relevancy
KPIs should be systematically derived from the corporate strategy. Therefore, first identify the critical success factors that are decisive for achieving your strategic business goals. Typical examples of critical success factors include the quality of customer relationships, order processing speed, and product quality. You then define one or more key indicators for each of the critical success factors so that you can measure and assess their level of compliance. A frequently used key figure to determine the order processing speed, for example, is the processing time.

KPIs therefore help you measure what is really important for your company's success. Or to put it the other way around: Anything that is irrelevant to achieving your strategic goals doesn't have to be recorded.

Target group and purpose oriented
Key figures that are important for one department do not necessarily have to play a role for others as well. KPIs should therefore always be individually determined and compiled for the individual functional areas within the company. However, it is important that they are in line with the company's overall key figures (cascading effect).

Less is more
The number of KPIs must remain manageable. The responsible managers should be able to see at a glance whether the company is on the target course. This can be done using dashboards, for example. As mentioned, when choosing, focus on what is really important. Experience shows that seven to ten KPIs are sufficient for most companies.

intelligibility
The KPIs must be clearly and simply defined. All employees who influence KPIs through their work performance should be able to understand exactly what is being measured, why it is being measured, and how it is being measured. More importantly, they should be able to correctly interpret the measurement result and derive corrective measures if necessary.

controllability
Employees can only improve the performance of KPIs if they can also influence them themselves through measures or behavior. Therefore, ask yourself whether the person responsible has the necessary powers and the corresponding influence to bring about measurable changes in performance levels.

Balanced mix of late and leading indicators
KPIs should make it possible to relate to the past, present and future. Therefore, aim for a balanced mix of late and leading indicators. Trailing indicators (earnings figures) mean financial figures that document past performance. In retrospect, they show whether the company was able to achieve its goals. Examples of lagging indicators include sales, ROI, and market share.

Early indicators (performance drivers), on the other hand, describe driving factors for future performance. They measure the processes that are supposed to ensure that the company is successful tomorrow. They help to identify undesirable developments at an early stage and to take corrective action and counteract them. A frequently cited example of a performance driver is the error rate, which provides information about the development of quality within the company. A change in the error rate can have a medium or long term impact on the company's results. If the error rate increases, for example, the quality of products and services decreases. This in turn can lead to declining sales figures and thus profit losses.

While lagging indicators therefore allow us to look in the rearview mirror, leading indicators allow forecasts about the future.

quantifiability
KPIs must be able to be expressed in figures. As a result, they are clearly comparable with each other and development trends upwards or downwards are immediately obvious. However, this does not mean that only financial indicators should be determined. Soft factors such as customer satisfaction can also be measured, for example by taking the number of customer complaints as a basis.

reliability
Make sure that the data to be delivered is consistent and reproducible at any time under the same conditions.

topicality
Regular reporting is necessary in order to be able to effectively manage KPIs. Therefore, when selecting the KPIs, make sure that they can be determined automatically at best without much effort. In order to be able to act as agilely as possible, it is also advisable to focus on key figures that can be collected at relatively short intervals (daily, weekly, monthly). By contrast, key figures that can only be calculated annually are less suitable.

KPIs are an important instrument of strategic controlling, provided that they are carefully selected with regard to the corporate strategy, are accepted by employees and are constantly checked to ensure that they are up to date. They enable the management, control, coordination and optimization of processes, create transparency and guide action. The selection of KPIs is an important management task that you should not underestimate.