Key Performance Indicator Categories

Key Performance Indicator Categories

7/11/2018

Key Performance Indicators

|

Business

Once an organisation has determined its value proposition, it may select KPIs that are aligned with its primary objectives. In this article, we'll introduce key customer, operational and developmental objectives. that an organisation should include in its strategy. 

---

Customer KPIs

Customer-oriented KPIs will determine whether an organisation’s customer service standards are aligned with their customers’ expectations. [1]

The American Institute of CPAs (2012) states that organisations may create customer strategies that are focused on three key areas: [2]

1. Retaining and expanding an organisation’s customer base

Organisations that prioritise the quality of their operations may choose to retain and acquire their customers with competitive prices. Furthermore, organisations with customer-oriented strategies may promote their products and services through word-of-mouth marketing and customer loyalty programmes.

2. Increasing amount of revenue by acquiring, retaining and selling to each customer

Industry leaders may offer new models of their products. These products may be equipped with innovative features, and may include additional products and services. Furthermore, organisations may offer complete solutions and packages to increase revenue per customer.

3.  Reducing the cost of acquiring, retaining and selling to each customer
​
Organisations may reduce their cost per customer by establishing strict guidelines for internal procedures and supply chain management.

Examples of Customer KPIs

According to Marr (2014), organisations with customer-oriented objectives may measure their performance with the following KPIs: [3]

1. Net Promoter Score (NPS)

• Measures customer satisfaction according to how likely customers would recommend a company or its products to friends or colleagues.

2. Customer Profitability Score

• The difference between the revenues earned from a company’s relationship with its customers, and the costs associated with these customer relationships.
• The Customer Profitability Score is calculated within a specific timeframe.

3. Customer Retention rate

• Percentage of a company’s existing customers who would remain customers or make repeat purchases.

4. Conversion rate

• An indicator of the organisation’s ability to convert potential customers into actual customers.
• Organisations may measure their conversion rates according to important customer metrics, such as visitor sales, lead generation and/or click-through rates.

5. Relative Market Share

• A percentage that compares an organisation’s market share value over its largest competitor’s market share value.

---

Internal Processes

1. Introduction to Internal Processes

Once an organisation has identified its financial and customer-oriented KPIs, it should execute strategies that would increase its market share. During this stage, managers should have identified objectives to accomplish, and they must devise initiatives that would drive their organisation towards its strategic objectives.

An organisation’s internal perspective allows it to select and execute relevant business processes. These internal business processes must identify appropriate customer and financial strategies, and should allow an organisation to accomplish its primary objective. Furthermore, an organisation should ensure that their new internal business processes are related to its value proposition and its existing schemes. [4]
 
2. Align Internal Processes with Primary Objectives

Each organisation should align its internal processes with its specific objectives. A study by the American Institute of CPAs (2012) provides the following examples of how this may be achieved:
 
2.1. Operational Excellence as a Primary Objective
Companies which prioritise operational excellence should prioritise internal operations. This may involve eliminating activities that would not generate organisational benefits, reducing its expenses and deliver affordable prices to its customers. [5]
 
2.2. Product Leadership as a Primary Objective
Organisations which prioritise product leadership strive to be the first providers of innovative products and services within their specific industries. As such, these organisations may choose to allocate most of its resources into initiatives that would facilitate research and development, as well as early market penetration. [6]
 
2.3. Customer Relationships as a Primary Objective
Customer-centric organisations would intend to develop their knowledge of their customers’ preferences, and develop strong relationships with their customers. As a result, they may focus on processes that are directly associated with customer management. These processes may include customer selection, acquisition, retention and development. [7]

Examples of KPIs for Internal Processes

According to Marr (2014), organisations may monitor their internal processes with the following KPIs: [8]

1. Capacity Utilisation Rate (CUR)

• A ratio that compares an organisation’s actual installed productive capacity with its possible capacity. This indicator is measured during a specific time period.
• This indicator determines if an organisation’s actual installed productive capacity is fully maximised.

2. Project Schedule Variance (PSV)

• A comparison of a predetermined time taken to complete a project, and the actual time taken to complete the project.
• This indicator determines an organisation’s ability to complete its projects within their scheduled timeline.

3. Project Cost Variance (PCV)

• An indicator that compares the planned costs or an organisation’s project with the actual costs incurred to complete the project.
• This indicator allows an organisation to determine the extent of its cost overruns.

4. Earned Value (EV) Metric

• An indicator that compares the amount of work that they have completed, as compared to how much they expected to complete, within a specific timeframe.
• This indicator is measured as a percentage, and assumes that an organisation is able to maintain constant performance levels.

5. Order Fulfilment Cycle Time (OFCT)

• The amount of time that a customer purchases a product or service, to the moment that a customer receives their purchase.

6. Delivery in Full, On Time (DIFOT) rate

• An indicator that compares the number of units that an organisation has delivered in full and on time, in comparison with the total number of orders that an organisation has dispatched.

7. Process Downtime Level

• The difference between the planned productive time that a process or machine is available, and the actual productive time that a process or machine is available.

---

Learning and Development

1. General Categories of KPIs for Learning and Development

Once an organisation has established its corporate strategies, its managers may realise that its workforce may lack information or competencies that are required to execute these initiatives.

As a result, managers may choose to establish training programs for their employees.
Managers must align their training programs to:

• Their organisation’s specific objectives;
• Their organisation’s internal and external environment;
• Their customers’ expectations; and
• Their organisation’s value proposition.

The American Institute of CPAs (2012) classifies an organisation’s learning and development initiatives into three categories: [9]

1.1. Human capital

An organisation draws economic value from critical information about its activities, and its strategic partnerships. Furthermore, an organisation draws value from its dedicated workforce, who may make strategic decisions about customer service, product quality, and miscellaneous corporate processes.

1.2. Information capital

An organisation stores critical information within its “information systems, networks, manuals, databases and infrastructure”. They would use this information to remain competitive in their industries, and to execute their corporate strategies.

1.3. Organisational capital
​
An organisation would align its employee-centric goals to its corporate objectives. Organisations should develop strong relationships between supervisors and employees, connected communication channels, and a shared vision amongst its staff. Organisations with strong organisation capital would be able to retain its employees, and sustain their performance.

Examples of KPIs for Learning and Development Initiatives

According to Marr (2014), organisations may monitor their learning and development initiatives with the following KPIs: [10]

1. Staff Advocacy Score

• This indicator determines how likely employees would recommend a working for an organisation to their friends.
• This indicator allows managers to estimate staff satisfaction and loyalty, and the organisation’s ability to attract new talent.

2. Employee Engagement Level

• This indicator is measured with an employee engagement survey, which instructs employees to answer questions about behaviours or characteristics that will improve their organisation’s productivity.
• This indicator estimates the likelihood of an organisation’s financial success. It also determines if an organisation adheres to its vision and mission statements.

3. Absenteeism Bradford Factor

• This indicator measures how often an employee would be unavailable for work.
• This indicator quantifies the extent of which an organisation is disrupted due to frequent short-term absences. It compares its findings to isolated extended absences.

4. Human Capital Value Added (HCVA)
​

• This indicator is used to quantify the profit that its employees may generate.
• Non-employee-related expenses are subtracted from the amount of revenue an organisation has generated. This figure is divided by the number of full-time employees in the organisation to measure an average employee’s profitability. [11]

5. 360-degree Feedback Score
​

• This indicator provides employees with a holistic assessment of their performance. These assessments are based on feedback from an employee's supervisors, co-workers, customers, suppliers and previous reports. [12]​

---

references

[1] Stillwagon, A. (2015). 14 Key Performance Indicators (KPIs) to Measure Customer Service. Retrieved from https://smallbiztrends.com/2015/03/how-to-measure-customer-service.html
[2] American Institute of CPAs. (2012). How to Develop a Strategy Map. NY, U.S.A. Published by American Institute of CPAs. pp. 8
[3] Marr, B. (2014). 25 Need-To-Know Key Performance Indicators. 1st Edition. London, U.K. Published by FT Press.
[4] American Institute of CPAs. (2012). How to Develop a Strategy Map. NY, U.S.A. Published by American Institute of CPAs. pp. 9
[5] American Institute of CPAs. (2012). How to Develop a Strategy Map. NY, U.S.A. Published by American Institute of CPAs. pp. 9
[6] American Institute of CPAs. (2012). How to Develop a Strategy Map. NY, U.S.A. Published by American Institute of CPAs. pp. 9
[7] American Institute of CPAs. (2012). How to Develop a Strategy Map. NY, U.S.A. Published by American Institute of CPAs. pp. 9
[8] Marr, B. (2014). 25 Need-To-Know Key Performance Indicators. 1st Edition. London, U.K. Published by FT Press.
[9] The American Institute of CPAs Tool – How to Develop a Strategy Map. pp. 10
[10] Marr, B. (2014). 25 Need-To-Know Key Performance Indicators. 1st Edition. London, U.K. Published by FT Press.
[11] Cheprasov, A. (n.d.). Human Capital Value Added (HCVA): Definition & Measurement. Retrieved from https://study.com/academy/lesson/human-capital-value-added-hcva-definition-measurement.html
[12] Qualtrics. (n.d.). 360-degree Employee Assessments. Retrieved from https://www.qualtrics.com/qualtrics-360/360-degree-employee-assessments/