Why are key performance indicators important?
Published 2019-02-04, updated 2023-03-14
Summary - It's easy to jump into what key performance indicators are long before understanding why they are important. If you need to better understand the why of KPIs, consider this your starting point.
The reality is that in today’s data-driven world, numbers are important no matter where you work. One of the most common ways to work with data and numbers is KPIs, or key performance indicators. Now you might find yourself asking, “why are KPIs important?”
We have the answers.
What are KPIs and why are they important?
Key performance indicators, the full form of KPI, are a measurable value that demonstrates how effectively a company is achieving key business objectives.
KPIs are important because it gives you a value to compare against your current performance. KPIs clearly illustrate whether or not you are reaching your goals.
Implementing KPIs in your company means you can set goals, devise a strategy to reach your goals, and evaluate your performance along the way.
Why are KPIs important?
Here are four additional reasons that KPIs are important for businesses.
- KPIs strengthen employee morale
- KPIs support and influence business objectives
- KPIs foster personal growth
- KPIs are critical for performance management
KPIs strengthen employee morale
This is the most under-utilized value of KPIs.
A company’s culture is important for performance. A culture that supports and motivates all of those in it is destined to do better than one that does not.
In this sense, tracking KPIs can be about acknowledging employees' hard work and securing their feeling of accountability and responsibility.
At our company, everyone has KPIs that they are responsible for. When we hit those numbers there is a sense of ownership in our work and recognizable evidence of our contribution to the team.
As a company grows, there can be an increasing sense of distance between the organization's achievements and the individual's efforts toward them. When people feel responsible for KPIs, they are more likely to push themselves and receive more satisfaction from a job well done.
The relationship between KPIs and business objectives
KPIs are important to business objectives because they keep them at the forefront of decision making.
It’s essential that business objectives are well communicated across an organization, so when people know and are responsible for their own KPIs, it ensures that the business's overarching goals are top of mind.
KPIs also ensure that performance is measured in relation to the larger business objectives. This means that every part of work is done with intentionality and for the right purpose.
KPIs foster personal growth
Not every campaign or product update will reach their targets. But monitoring performance against those targets, be it good or bad, creates an environment of learning.
With KPIs, teams are able to see exactly how they are performing at any given moment. No longer do they need to wait for the end of a quarter or project to tabulate the results.
When you track KPIs, especially when you do so on a real-time KPI dashboard, you are able to ask what, why, how and when... and do so whenever. This makes learning from successes and failures a daily (rather than weekly or monthly) activity.
Another reason why KPIs are important for personal growth builds off of the idea of increased morale. Allowing employees to monitor their performance and respond in the moment means that they are more likely to achieve their goals and better understand how to do so in the future.
This sense of continuous improvement allows people to achieve far more than they might think, which is essential for workplace satisfaction and continued personal growth.
The importance of KPIs for performance management
I’d say this last one is the definitive reason why key performance indicators are important for businesses.
It sums up all of the above reasons: what gets measured gets managed.
Employee morale, culture and capacity, among others, all contribute to performance. KPIs simplify performance management by allowing everyone to not only see what they’re doing, but what others are doing as well.
This transparency ensures everyone is working in the same direction, which simplifies lines of communication because the answer to “How are we doing?” is bundled into a clear number rather than hidden under spreadsheets and services or, worse yet, behind guesses. So tracking your sales KPIs in an open, transparent way to increase accountability.
An example of KPIs in business
"In your current role, what's your most important KPI? How did you select it, why does it matter, and how are you monitoring progress toward it?"
In the imagined scenario above, did your mind hone in on how you'd answer? Or did you feel scattered?
We write a lot about KPIs here. If you've been a reader and subscriber long enough, you can likely rattle off the 5 or even ten most important KPIs in your industry without blinking.
But what about when it comes down to one? What about when you're pressed and need to select the single most important KPI for your line of work? The one that in many ways is a representation of your impact?
What KPI best represents how you drive the business forward?
Keep that answer somewhere safe. It will come in handy both for your own focused daily work and for when the time comes to communicate why you're doing what you're doing.
How did you select this KPI?
With the previous answer in hand, now is your time to tell a story. So, how did you choose that KPI from among so many others?
What challenges were you seeing? What challenge was the company or your team facing? What process did you use to select the right KPI for the situation?
It's not enough to know the KPI you are driving toward; you must know that KPI's story.
How are you monitoring progress toward this KPI?
Lastly, now that you've made clear that this is the "most important KPI" for you, you're now tasked with conveying how you monitor it.
So, how are you gauging progress? How are you communicating this progress?
If you're using spreadsheets or perhaps an in-app or in-platform monitoring tool, great.
If you're using a KPI dashboard software, there's no need to make a case for cutting-edge. It's understood and you've likely earned a few bonus points as a result. But you'll still need to communicate how this method helps your pursuit.
Final KPI musings
When it comes to key performance indicators, we've always believed that the fewer you're tracking the better you're likely tracking them.
But what if it came down to one? What if, for a moment and in the wild world of business metrics, you had to choose a single KPI that you woke up and worked by, day in and day out?
Which would you choose? How did you choose it? Why does it matter? How are you monitoring it?
This article was originally published in July 2017 and has been updated for accuracy.
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