Every year, organizations spend hours conducting performance reviews, reviewing metrics, and setting goals with employees.
But without key performance indicators (KPIs), neither employees nor their managers can say whether or not performance expectations were met.
KPIs establish the bar in terms of the specific deliverables employees will produce and provide a means to measure the effectiveness and outcomes of their efforts.
Let’s dig a little deeper to understand how your organization can use KPIs to drive performance improvement.
How Can KPIs Be Used In Performance Management?
It’s important to understand the KPIs are not goals.
Goals are the broad outcomes that managers expect of their employees. KPIs provide a quantifiable way to measure those outcomes.
Managers and supervisors should work with their employees to understand how the employee’s performance impacts department, division, and organizational goals and develop KPIs that measure performance.
For example, an employee might have a goal of improving sales performance in 2022. A related KPI might be: “Increase sales in XYZ region by 10% by year-end.”
Once developed, KPIs need to be reviewed, discussed, and potentially modified over time. Managers should establish regular reporting periods where they review progress with employees. This might be on a weekly, monthly, or quarterly basis.
Whenever possible, provide employees and managers with real-time access to performance metrics so they can be continuously monitored. This provides a powerful point of discussion for performance conversations.
How Do You Use KPIs to Measure Employee Performance?
KPIs should be specific, measurable, and quantifiable. They should be tracked throughout some time frame to ultimately indicate whether the employee has been successful in achieving their goals.
Once an agreement has been reached on an employee’s goals and objectives for a certain period of time, managers should work with employees to develop KPIs that can be used to measure performance.
KPIs can be focused on both process and outcomes measures. Process KPIs measure progress along the way to some desired outcome. Outcome KPIs measure desired end results.
For example, generating a specific number of leads over a specific period of time might be a process KPI driving toward an outcome KPI of sales.
There are some important attributes that should be reflected in KPIs to ensure they will be effective in measuring performance:
- They should be directly aligned with the organization’s goals and objectives. If not, they would not hold value for the organization and time spent attempting to influence these KPIs would represent wasted effort.
- They should be able to be easily quantified, or measured. If a metric is difficult to attain, it obviously can’t be used to measure performance. For example, if you establish a KPI related to customer satisfaction but have no way to capture input from customers related to their satisfaction, this would not be an effective KPI.
- The employee needs to be personally able to influence the KPI. It’s not uncommon for marketing staff members to have KPIs related to sales, however, it’s unlikely that individual marketing staff have the ability to influence all elements that go into making a sale—from product quality and availability, to salesperson effectiveness, order fulfillment, etc. Employees should be able to influence the KPIs set for them.
- They should be clear, simple and easy to understand. Effective KPIs serve as a powerful communication tool for helping employees understand specifically what is expected of them, but they need to be framed in such a way that they are readily understandable and unambiguous.
- They need to be able to be measured and communicated in a timely manner. If the data required to measure KPIs is too complex or too difficult to gather, it may not be possible to provide the kind of timely feedback needed to drive desired performance outcomes.
KPIs can be extremely useful, but they aren’t the sole indicator of how well an employee is performing. KPIs should be linked to objectives and tracked to see how employees are performing over time.
Examples of Performance Management KPIs
Some of the most successful companies effectively use KPIs to monitor and manage employee performance. For example:
- Uber places high value on customer satisfaction and has a process whereby riders are asked to evaluate their driver (interestingly, Uber also asks drivers to evaluate their riders). The ratings over time and across multiple trips then provide a KPI that can be tracked to indicate how well the driver is performing.
- Betterment, an online investment company that relies heavily on referrals to help grow its client base, uses KPIs to track referrals. This helps them know that they’re headed in the right direction and provides a means of assessing individual performance.
Both of these examples illustrate an especially important aspect of selecting appropriate KPIs—they need to be set with organizational goals in mind. Here’s a list of some additional potential KPIs to help spark some ideas. Keep in mind that the most effective KPIs will be specific to your own organization and its goals.
Sales volume KPIs could be set at a variety of different levels—overall sales, sales by product or services, sales based on specific demographic markets, etc.
Like sales volume, customer satisfaction can also be measured at an overall level or may be broken down into specific categories: satisfaction with a certain type of product or service, satisfaction with aspects of the sales cycle, satisfaction with certain types of touchpoints within the organization, etc.
Employee satisfaction is directly related to customer satisfaction and is important for organizations to measure. Employee satisfaction might be broken down by division, department, manager, length of service, role within the organization, etc.
All organizations need ways to measure the quality of the products and services they provide. In manufacturing organizations, defects can provide a good KPI to measure quality. In service organizations, quality might be measured through input from customers or clients.
As you can see, there are a wide range of KPIs that an organization or manager might use to measure the impact of an employee’s performance.
But it’s important to avoid coming up with too many KPIs.
Instead, focus on a few key metrics that provide the best insights into an employee’s personal impact on overall organizational goals.
A good way to approach the process of establishing KPIs is to work with employees to brainstorm a list of possible KPIs.
Then, prioritize the list to identify the most important and relevant KPIs that will give you the information you need to effectively evaluate employee performance.
In addition, give yourself and your employees flexibility to modify, add, or remove KPIs. Performance management is a process that can (and should) be informed through experience.
Don’t overlook the power of well-crafted KPIs to help drive performance improvement in your organization. When aligned from top to bottom, created in collaboration with employees, and monitored and reviewed regularly, KPIs play an invaluable role in the performance management process.