KEY PERFORMANCE INDICATORS AND METRICS

by Curt Hall, Senior Consultant, Cutter Consortium

One reader wrote to say that I seem to use the terms "key performance indicators (KPIs)" and "metrics" interchangeably in my articles, asking, "What's the difference?" I admit I'm guilty of this, along with many other people who tend to throw the terms around without giving much thought to their actual meanings. I'd like to try to clarify their use and point out why their different meanings are important.

Both KPIs and metrics are vital when it comes to BI and business performance management initiatives; however, they do have different meanings that are important for implementation purposes. The term "metric" is generic. It is typically used to mean just about any sort of measurement applied to gauge a particular business process or activity -- for example, network usage or percentage of visitors just browsing a Web site compared to those actually making purchases (i.e., browsers versus customers).

KPIs are metrics, too, but they are "key" metrics. In other words, KPIs are metrics used to measure important business activities and processes of a strategic nature, and they are usually tied to a balanced scorecard or some other business management methodology. In addition, KPIs are metrics whose measurement functionality are designed to be applied enterprise wide -- to impart standardized definitions and meanings that cut across different departmental and organizational boundaries -- so that everyone in the company can operate from the same set of definitions.

KPIs are meant to gauge progress toward vital, strategic objectives usually defined by upper management, as opposed to the more generic metric used to measure a more mundane (i.e., less strategic) process. The goal is to foster greater visibility, better execution of strategy, faster reaction to opportunities and threats, and improved collaboration and coordination across key business operations. Suitable examples include KPIs for measuring and achieving better customer satisfaction, organizational learning, improved product quality, or overall contact center efficiency.

KPIs are essential to the success of any business performance management, BI, or customer relationship management (CRM) initiative. However, it is precisely the strategic, enterprise-encompassing nature of KPIs that makes identifying and defining them so difficult. Thus, it is fundamental that organizations identify the vital activities or processes whose measurement is key to driving the organization to achieve its strategic plans and directions. And care must be taken to ensure that KPIs are defined for cross- organizational terms (i.e., as strategic drivers) as opposed to localized or departmental terms.

One method for identifying KPIs is to hold meetings with senior executives. Another is to survey managers in key divisions. Both of these are followed up with brainstorming sessions in which the various KPIs that have been identified are narrowed down to include only those that are common across multiple departments and divisions. One-on-one interviews with managers are also useful, although they obviously require more time to conduct. In reality, a combination of the methods will probably be required.

Regardless of the methods employed, it is essential to make sure that the people closest to the business are actively involved in the KPI identification process.

-- Curt Hall, Senior Consultant, Cutter Consortium