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Key Performance Indicators (KPIs) can be defined as measures that provide managers with the most important performance information to enable them or their stakeholders to understand the performance level of the organization. KPIs should clearly link to the strategic objectives of the organization and therefore help monitor the execution of the business strategy.
To learn and improve To report externally and demonstrate compliance To control and monitor people
Of these three the first is the most important, the second is something organisations just have to do and the third one can cause major problems.
conformity. In this context, measures are often tightly linked to reward and recognition structures. Research has shown that this approach, if not implemented well, can be dangerous and often leads to a culture in which people focus on delivering the measures but not the performance (i.e. hitting the target but missing the point).
Words, numbers, star ratings or traffic lights are all valid forms of measurement. What matters the most is that you measure the relevant things that will help you answer the questions that matter the most in your organisation. We prefer therefore to use the word indicator, rather than measure. A performance indicator indicates a level of performance, but it does not claim to measure it (see Figure above). If, for example, we introduce a new indicator to assess customer satisfaction, this indicator will give us an indication of how customers feel; however, it will never measure customer satisfaction in its totality. In the same way that an IQ test will give us an indication of intelligence (especially our mathematical and logical reasoning), but will never completely measure all dimensions of human intelligence (e.g. emotional intelligence, hand-eye coordination, special awareness).