KPIs (Key Performance Indicators) are measures of business performance. They are used to check performance against targets, or as benchmarks to signal areas of performance in need of improvement. They are, therefore, measures of a firm’s Critical Success Factors.
In any company there may be dozens of Critical Success Factors and literally hundreds of KPIs to use to track your performance. Which ones are significant for any particular company at any particular time depends on what you are planning to achieve and what your current situation is, so a SWOT (Strengths, Weaknesses, Opportunities, Threats) paradigm provides a way of classifying Critical Success Factors as in the Table below.
| factor | example kpis |
| MONITORING OPERATING STRENGTH: those factors that are the basis of continuing successful performance | 1.Percentage of seats filled for a theater 2. Number of consulting hours sold for a services firm 3. Return on investment
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| CORRECTING FOR WEAKNESSES: factors that need to improve to maintain the viability of the business | 1. Market share 2. Value of sales per salesperson 3. Inventory turnover rate
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| SEEKING OPPORTUNITIES: those operations in which an improvement could lead to bigger market share or improved sales | 1.Productivity rate 2. Time to market 3. Investment in R&D
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| ADDRESSING THREATS: those that are providing an immediate or longer term threat to viability | 1. Cash flow 2. Rate of new customer acquisition 3. Liability claims
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As is apparent the set of KPIs that might be relevant to any one Critical Success Factors can be drawn from a number of processes – eliminating a weakness factor might involve improving sales per salesperson, decreasing invoicing errors, improving safety record, and so on.
How you decide on which KPIs to track and act on depends on:
1. Industry Knowledge: What are the numbers that must be on track in a particular industry and where does the firm under review rate with regard to industry averages? What is happening in the industry that will have an effect on the firm’s viability?
2. Business Plan Objectives: A business plan based on a strategic planning exercise will provide the key objectives for the next planning period and so determine which Critical Success Factors to focus on.
3. Targeting Selected Drivers: since it is unusual that all the drivers of any one Critical Success Factor can be acted on at once it is necessary to decide which to concentrate on to achieve the stated objective. For example, increasing the customer satisfaction score could involve a range of drivers such as greater customer contact, reduced delivery errors, better installation procedures, and product design improvement. These become your KPIs for measuring how the process is going.