Do your KPIs really measure what you want to know?

A data-driven organization: of course everyone wants one. No longer making decisions on gut feeling alone, but well substantiated with data. That's why companies increasingly start working with data analytics software and put together dashboards with various important Key Performance Indicators (KPIs) in no time. Yet your organization doesn't seem to be actively steered from such dashboards. It seems a bit as if they are used as little reports in which you can see how you performed in the past, but from which you can't draw conclusions about the future. What could be the reason? Your KPIs are probably not as important as you first thought..

Do your KPIs measure what really needs to be measured?

If you notice that your dashboard doesn't give you much to steer by, it's a good idea to take a critical look at your KPIs. Not all KPIs are equally important, and not all KPIs can be influenced by the organization. It is therefore important to investigate carefully which KPIs are truly relevant to the business. If nobody looks at a certain KPI, it should be removed or adjusted. Besides that, a KPI can become outdated because its impact decreases or the process has been optimized, so that it is no longer necessary to actively steer on it. Besides choosing the right KPIs, the structure is also important. Without a clear structure, it becomes difficult to set a focus. As a result, all KPIs may get equal attention, or none at all. It is therefore very important to scrutinize both your KPI choices and their structure.

The KPI tree

By asking yourself whether these are really the most important KPIs and whether you can actually steer the organization on the basis of them, you take a critical view. This lets you check whether you are measuring the right factors and whether these are factors the organization wants to steer on. The best way to find this out is to determine what the organization's most important strategic goals are. By taking an organization's strategic goals as a starting point, you can set up a 'KPI tree' in which KPIs are distributed across multiple levels. Such a tree visually shows how important KPIs are distributed across the different departments and levels of an organization. This directly links operational and strategic goals. With a visual overview in the form of a KPI tree, you can see that all KPIs are based on the overarching strategy of an organization. The example below shows a KPI tree aimed at an organization's strategic goal of improving customer satisfaction.

Different types of KPIs

The KPIs in KPI trees must be measurable and trackable, so that you can monitor what happens to them and actually take action when needed. If you measure something you have no influence on, you can't do anything to change it either. There are of course many different types of KPIs, as you can measure all kinds of factors. However, a distinction is often made between two types of (performance) indicators: 'lagging indicators' and 'leading indicators'.

Lagging indicator: result-oriented indicator that only provides insights once things have happened. They are historical in nature and often reflect a response to something that happened a short or long time ago. This is a lagging KPI that is output-oriented. An example of such a lagging KPI is the target weight (in kilos) of someone who wants to lose weight.

Leading indicator: indicator that directly follows the process. This indicator gives a (real-time) indication of a deviation from the standard. Leading (process-oriented) indicators show immediately whether something is going wrong and/or deviating from the norm, while it may still take months before this becomes visible in reporting. This is a steering KPI that is input-oriented. Examples of steering KPIs for our earlier weight-loss example are: the number of calories eaten, the number of calories burned and the number of hours of running per week.

Measure what you want to know

By defining KPIs based on your strategic goals, you measure exactly what you really want to know. This gives you the means to steer actively and proactively when needed. When you take the strategic goals as a starting point, it is easy to bring structure to your KPIs. With the help of the KPI tree, you can see exactly which KPIs influence each other and can ultimately realize the organization's strategic objectives. Once this KPI tree has been set up, it is wise to review it every quarter. You can ask yourself, for example, whether all KPIs are still being steered on or whether some have become outdated. By looking at this, you make sure the KPIs in your dashboard are up to date and steerable at all times. Are you curious how best to approach this for your organization? Or do you not have an analytics dashboard yet, but want to structure one around strategic objectives? Then get in touch with us for more information about workshops and implementation plans.