Performance Indicators: What Are They and How Define The Best Ones

Performance indicators or KPIs are very well known at the corporate level for helping all the employees to measure the quality of work, the productivity of a company, as well as customer satisfaction.

It happens because everything is done using data which is generated by the company itself. Such a realistic process will happen with what really happens in business.

However, many people have difficulty understanding how to define these evaluation parameters and how to apply them in their daily lives, in addition to their importance in people management, the business as a whole and the market itself.

Therefore, we have prepared a complete article to answer all your questions on the subject and teach you how to define the best indicators according to your reality and the current situation of your company.

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What are Key Performance Indicators (KPIs)

Performance Indicators, or KPIs (Key Performance Indicators), are one measure with which to determine the company’s effectiveness in reaching strategic goals.  These are measures clear of numbers and therefore can be used to make concrete managerial decisions based on actual measurement of progress.

In that regard, KPIs are applied to track performance in areas such as sales, marketing, operations, and finances. After all, they help in laying out both opportunities and problems affecting the growth and efficiency of the company.

Since the business has specific peculiarities unlike others, selection and definition of performance indicators are very important and must align with the company’s objectives and reflect what matters in the long run for success.

What are the benefits of defining my company’s performance indicators?

As stated above, establishing performance indicators, or KPIs, plays an extremely important role in the development of your company.

Indeed, they allow tracking the achievement level of strategic goals set and thereby the areas requiring correction at a very fast pace. By means of well-formulated KPIs, you provide yourself with the possibility of taking more precise decisions based on solid data. Thanks to this, you can improve the effectiveness and competitiveness of your business.

Internal communication can also be enhanced through KPIs as everyone will be working towards the same goals. In this way, there is increased transparency and focus on all those objectives that need to be attained.

Should every company have performance indicators?

Yes, even for any company, regardless of size and sector, such KPIs need to be determined. Without them, it is rather difficult to tell if the company is following its correct direction toward achieving goals or requires adjusting some of its decisions, perhaps even the actions made.

In this respect, KPIs facilitate defined objectives and hence help organizations be responsive and effective. They are guidelines in arriving at decisions since all efforts are always channeled towards the strategic objectives of the business.

What are KPIs?

There are several types of indicators that can be set up in order to measure the productivity and the quality of work that will obtain objectives in companies. Each type has its own specificity, and this specificity goes into very concrete ways in which a specific tool can be put into practice in daily working operations.

Now we’ll explain some of the most important KPIs more commonly used by companies and their specific usage as well as how each of them works to help in the management of a business.

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Productivity indicators

Productivity Indicators allow analyzing the relation between what is produced and the factors input, like time, labor, materials, etc.

In such a way, they help to identify bottlenecks in production; optimize the process; increase production without necessarily increasing costs; and ensure that the company works at a greater efficiency.

Ultimately, it is possible to make a parallel between the work time of the employees and the amount of production presented through the Productivity Indicators. It means that managers will also have the opportunity to understand how to optimize daily routines for employees and improve productivity from people.

Quality indicators

In turn, Quality Indicators measure customer satisfaction and the excellence of the products or services offered by the company.

With them, it is possible to identify irregularities that do not match what the company is offering and help to evaluate whether what is delivered meets the expected standards and the customer’s needs.

This makes it possible to identify areas for improvement, reduce defects and ensure that the company maintains a high level of quality in everything it does.

Capacity indicators

Understanding how much your company can produce and deliver is extremely important. To this end, there are Capacity Indicators that measure how much the company can execute and/or meet in a given period of time.

In this way, they help to understand the maximum limit of production or service that the company can offer without compromising quality.

With them, your company can plan expansion, adjust processes and ensure that the company operates within its capabilities.

Strategic indicators

Strategic Indications measure how the company is doing relative to its aims and long-term goals.

A very successful way to determine whether the strategies adopted actually lead towards the right degree of growth and success or not would be through measuring strategic indications. Depending upon the results, it would be possible to recalculate routes and make other decisions.

Profitability indicators

Widely used within the finance department, profitability indicators are used to confirm (or not) whether the company is actually making a profit from sales.

It is necessary to have concrete spending and income data to understand this aspect.

Profitability indicators

Profitability Indicators show as much as the company is earning from an investment that is made.  They are here to indicate whether operations are generating enough profits to sustain the business and provide a return to investors or even for the health of the company.

Competitiveness indicators

Competitiveness Indicators measure the company’s performance in relation to its competitors in the market. This aspect is extremely important to ensure that your company does not become outdated compared to others in the same segment and sector.

To do this, they assess whether the company is standing out, gaining market share and offering competitive advantages. This makes it possible to identify strengths and areas for improvement, allowing the company to remain relevant and ahead of the competition.

Value indicators

These indicators relate to how much value the company is adding to its customers and shareholders. In this way, they assess whether the products or services deliver benefits that justify the price paid and whether the company is generating sustainable value in the long term.

All of this is also directly related to the amount charged for services or products sold, to the detriment of what is offered and also actually spent on production or execution.

Therefore, it is extremely important that the company knows how to price a service or calculate the selling price of products .

Turnover indicators

Finally, Turnover Indicators measure the employee turnover rate within the company. They assess how many people are leaving and joining in a given period, helping to identify problems such as dissatisfaction, lack of engagement or inadequate working conditions.