Explanation of Key Performance Indicators



Performance management plays an important role in successful businesses nowadays as it is increasingly applied in effective performance management of almost all organizations. It offers many options and seems to be a little complicated to people; so it is not accepted widely yet.

The process of appraising employee, equipment, performance and other factors involved in order to evaluate the approach toward the organization goals predetermined.


Performance Management sets a perspective for employees and performance managers up to evaluate and to agree on definite concerns and goals according to the overall body of the company. Both parties will benefit and will be able to establish open objectives that would enable them to work for a professional growth.


Performance management involves duties, which a performance manager is seemed to practice. Following are the most important duties of the performance manager.


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The stage of planning includes defining job descriptions and clarifying the special functions of employees while the strategic plans of the organization are defined as well.


This stage focuses on developing the standards and approaches of Performance Management that is a criterion of how jobs should be done in order to meet the overall expectations. New hired employees are trained to learn the standards that may later be evaluated by them. Employees support the outlining of the standards of performance management as they do the task.


This stage of the Performance Management process involves monitoring the functions of employees and gathering information about them as feedback. We should be able to verify the observations as a basis in feedback, noticeable and work-related facts, events, behaviors, actions, statements, and results should be involved in observations.


The stage of rating comprises of conducting performance assessments. An unbiased and fair assessment of performance is significant for performance managers so rating is of critical importance in the process of performance management.

Key performance indicators (KPIs)

A performance indicator is a quantitative or qualitative indicator that reflects the state or progress of the organization, unit or individual. As mentioned before assessment and analysis of organizations' performance play important roles in fulfilling the objectives of the organizations. Performance indicators are helpful measurement tools, which enable organizations to assess their performance; they can be categorized in to qualitative and quantitative performance indicators.

It is vital for a company to decide the relevant indicators and how they relate to the expected company goals and how they rely on the performed tasks. Nowadays many managers identify this and try to define company-specific goals, performance indicators and assess them. However practically such analysis is usually performed in an informal, ad-hoc way and will benefit from a more systematic way. The first step to improve in this area is clarifying the available knowledge on performance indicators and discovering how they are related to each other. In order to use this knowledge in a modern structure for organization modeling it is essential to formalize the concept of a performance indicator as well as its characteristics, relationships to other performance indicators and relations to other formalized concepts such as goals, processes and roles. This will not only contribute to the design and analysis of organizations and the assessment of their performance but will also enable reusing, exchanging and aligning the knowledge and tasks between organizations (for example supply chains).

KPIs are quantifiable assessments that reflect the critical success factors of an organization. Based on previous agreed measures, they display a high-level view of the organization. They differ based on the kind of organization they characterize; for instance, a business may have a KPI as the annual sales volume, while KPIs of a social service organization may have to do more with the number of people helped out. Moreover, colleges may have number of students graduating per year, as one of their KPIs.

When identified and aligned properly, KPIs can preserve a plant, a job, a career. If management really realizes the power of KPIs, things would change soon. Actually, managing without KPIs gives the feeling of lost with no hope (a reactive environment). Think of a car with the windshield painted black. Imagine a car that the driver cannot see where the car is going but has a glance of where it has been, through the rearview mirror. The driver cannot tell if the trip is successful or not until it is too late or disaster strikes. The car could go into the ditch (high cost or worse) or never reach the destination (business goals not met). So, the same for a company blind to KPIs. This is a serious trouble and it costs companies around the world billions of dollars because of what, we consider, a lack of management control. Peter Drucker, the industrial revolutionary, said: "You cannot manage something you cannot control and you cannot control something you cannot measure."

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Performance indicators have specific characteristics that can be identified as following:

Name of the performance indicator

Definition of the performance indicator

Type of the performance indicator

Continuous or discrete, for example if the indicator can be measured as a continuous number then its type can be specified as continuous and if the indicator is measured in indivisible units such as packets, items, pieces or using predefined concepts such a slow/medium/ high then it can be specified as discrete.

Time frame of the performance indicator

If applicable for which period is the performance indicator defined, the length of the time interval for which it will be evaluated, e.g. the indicator 'yearly profit' has time frame 'year', 'number of customers per day' has time frame 'day'.

Scale of the performance indicator

If relevant, the measurement scale for the performance indicator, different scales can be predefined and referred to here.

Min value, Max value of the performance indicator

When a predefined scale is used and only a part of this scale is relevant for the particular performance indicator.

Source of the performance indicator

Which was the internal or external source used to extract the performance indicator: company policies, mission statements, business plan, job descriptions, laws, domain knowledge, etc. these sources contain (informal) statements about the desired state or behavior of the company and regulations it has to obey.

Owner of the performance indicator

The performance of which role or agent does it measure/describe.

Threshold of the performance indicator

The cut-off value separating changes in the value of the performance indicator considered small and changes considered big, used to define the degree of influence between performance indicators, depending on the scale of measurement of the performance indication, the threshold can have a clearly defined unit of measurement. For example measured in hours, km, number of persons or products, etc. or it can be measured in unnamed units for qualitative scales such as low medium high where one unit represents the difference between two consecutive points on the scale.

Hardness of the performance indicator

A performance indicator can be soft or hard where soft means not directly measurable, qualitative, e.g. customer's satisfaction, company's reputation, employees' motivation, and hard means measurable, quantitative, e.g., number of customers, time to produce a plan.

Case study

Key performance indicators, which are common among all businesses, are explained as following. Competitive differentiation of companies can be determined through these measurable and analyzable KPIs.

Aspirational Index

The Aspirational Index is a measure of a company or team's belief in its people as the differentiating force of its business, and serves as an aspirational benchmark of people's potential engagement in the business and therefore an indication of the potential financial improvement of the business when all other Key Performance Areas are applied.

Leadership Index

A company's fortunes lie entirely in the hands of its leaders at every level, and their capacity to influence organizational engagement in the business, The Leadership Index is a measure of the nature of this influence. The question is that whether this influence is enhancing or impeding financial results. Everything starts from Leadership, and it is a measure of how well a company's vision is being 'lived' and the Strategy translated to the people who must execute it. Leadership is also the key to create the environment in which people are inspired to not only deliver consistently sound performance, but also dream with their customers and stretch themselves in pursuit of innovative solutions to customer and business needs.

'H' Factor Index

The 'H' Factor Index measures the deep-seated values and emotional intelligence of people as well as how well they express themselves creatively and purposefully in solving problems and building relationships as a means to deliver Customer Impact. It also measures the 'Mindset' and 'Behavioral' deficits that impede elite performance in a team or organization.

Risk/Reward Index

The Risk/Reward Index measures the extent to which people in an organization share in the Risk and Reward of the enterprise in which they are engaged, revealing extent to which people in an organization are individually and collectively, anchored to the course and consequences of the company's future. It is only by directly connecting individual and team performance to financial consequence, that sustainable engagement and alignment to corporate goals is ensured.

Innovation Index

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The Innovation Index measures Innovative Intensity as a combination of the degree and frequency of innovative activity. New ideas are created and applied at every level in the business to this extent.

Customer Impact Index

The Customer Impact Index reflects the extent to which people are passionate and protective about the value and impact they have created, and the extent to which your brand has become their brand. It defines and prioritizes where lack of customer impact is impeding business results, and points to the corrective entrepreneurial disciplines that need to be addressed.

What is going to be measured?

Embedded Vision & Strategy

The Leadership Index evaluates how well a company's vision in terms of growth is being 'lived' by its leaders and its strategy explained to the people who must put it into practice. It is a foundational determinant of company performance.

Unique Human Differentiators

The 'H' Factor Index indicates the belief, desire and capacity of a person, team, and organization to make a unique impact on a business's growth. It is an evaluation of the extent to which people are alive with the vision, the opportunity and the plan, and the extent of their creative and purposeful engagement in delivering a unique brand of impact to customers and the business.

Financial Motivation

The Risk / Reward Index evaluates the extent to which people in an organization participates in the risk and reward of the business in which they are engaged and therefore, their fundamental financial motivation to grow profitability.

Creation of New Value

The Innovation Index measures the innovative intensity within an organization and so its focus on creating new income and margin streams by creating new products and processes, and by improving existing ones.

Impact on Customer Spend

The Customer Impact Index measures an organization or team's overall focus on growing its business by influencing its customers (internal or external). It is a measure of the extent to which a business' Profit Drivers are competitively engaged through leadership, the 'H' Factor, risk and reward, and innovation, by defining and prioritizing the issues that are impeding customer focus and profitability.

Measuring Impact

Measuring Customer Impact

The performance of people through the eyes of a company and its customers can be explained by three zones. The three zones measure the degree to which Entrepreneurial Laws are understood and applied throughout the business.

In closing, Performance Management is a process that, when executed fairly and effectively, can improve the quality of the company's workforce, raise standards, increase job satisfaction, and develops professionalism and expertise that would benefit not only the employees but the entire organization as well.