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Overview

Many companies are working with the wrong measures, many of which are incorrectly termed key performance indicators (KPIs). It is a myth to consider all performance measures to be KPIs. This chapter explores how the four types of performance measures differ with examples of each type. The seven characteristics of KPIs are defined. The confusion over whether measures are lead or lag indicators is addressed. The questions How many measures should we have? and How many of each measure type? are answered. The importance of timely measurement is also covered.

Many organizations are working with the wrong measures, many of which are incorrectly termed key performance indicators (KPIs). I believe it is a myth to consider all performance measures to be KPIs. From my research over the past 25 years I have come to the conclusion that there are four types of performance measures. These four measures are in two groups: result indicators and performance indicators.

I use the term result indicators to reflect the fact that many measures are a summation of more than one team's input. These measures are useful in looking at the combined teamwork but, unfortunately, do not help management fix a problem as it is difficult to pinpoint which teams were responsible for the performance or nonperformance.

Performance indicators, on the other hand, are measures that can be tied to a team or a cluster of teams working closely together for a common purpose. Good or bad performance is now the responsibility of one team. These measures thus give clarity and ownership.

With both these measures some are more important so we use the extra word “key.” Thus we now have two measures for each measure type:

1. Key result indicators (KRIs) give the board an overall summary of how the organization is performing.

2. Result indicators (RIs) tell management how teams are combining to produce results.

3. Performance indicators (PIs) tell management what teams are delivering.

4. Key performance indicators (KPIs) tell management how the organization is performing in their critical success factors and, by monitoring them, management is able to increase performance dramatically.

Many performance measures used by organizations are, therefore, an inappropriate mix of these four types. First I describe each type of measure.