Author of this article: Andreas Soller

Key performance indicators (KPIs)

This article follows the concepts outlined by David Parmenter and Emanuel Camillieri to provide an overview how key performance indicators (KPIs) are linked to the overall strategy of an organization via critical success factors (CSFs).

Reading time of this article:

7 min read (1642 words)

Publishing date of this article:

Feb 2, 2025 – Updated Feb 8, 2025 at 12:56

This article is tagged as:

Strategic context

Mission Why do we exist?
Purpose of the organization.
Vision Where do we want the organization to go?
Future aspirations of the organization.
Values What guides us?
Core beliefs and ethical standards.
Strategy How are we going there?
Actions to be taken to achieve mission and vision.
Balanced Scorecard (BSC) What are the key focus areas?
Critical Success Factors (CSFs) What must be done absolutely right to ensure we are going there?

Balanced scorecard (BSC)

Balance

In order to not rely only on financial performance but have a more balanced view, Robert Kaplan and David Norton developed in 1992 the balanced scorecard (BSC) methodology to establish a more balanced perspective on performance within organizations by including non-financial dimensions for assessment. Originally the following four key areas were identified: financial results, customer focus, innovation / learning and internal processes. Parmenter recommends to additionally consider employee satisfaction and environment / community.

  1. Financial results: sales growth, risk management, cost reduction
  2. Customer and stakeholder focus: customer satisfaction, targeting key customers who generate most profit
  3. Internal processes: quality and efficiency, delivering on time, optimizing technology
  4. Innovation and learning: innovation, learning environment, culture
  5. Employee satisfaction: right people staffed, leadership, recognition, work-life balance index
  6. Environment and community: collaboration, future employees, social responsibility

(cf. Parmenter 2020:31)

Scorecard

Strategy is applied to all key areas and articulates long term and broad objectives. For better visualization and understanding of dependencies the objectives the relationships are made explicit.

Like a scorecard in sports or in a board game, the term scorecard tracks the progress. The progress is measured via critical success factors (CSFs) and indicators:

Critical success factors (CSFs)

Critical success factors (CSFs):

CSFs are the critical areas / activities that must go right to ensure success of a business.

An organization’s vision and strategies are directly linked to the CSFs:

  1. what needs to be done to materialize the vision and strategy by
  2. focusing on the key areas (balanced scorecard dimensions) that are essential for business success

CSFs might include for example:

  • Delivery in full all the time to key customers
  • Actively promoting our products and services to new customers
  • Adapt quickly to change
  • Willingness to abandon activities, processes, and initiatives that are not working or are unlikely to succeed
  • Maintaining a healthy and safe workplace
  • Constantly assessing and managing risks
  • Constantly looking for opportunities and new services that will be of interest to our key customers
  • Open access for staff to strategic information

(Parmenter 2020:128f; web-based tookit:56ff)

“The identification of CSFs permits the organisation to focus its efforts on building its capabilities to meet the defined CSFs. On the other hand, the defined KPIs provide the measures to determine whether the organisation is achieving its defined CSFs.” – Camilleri 2024:300

While CSFs represent the factors that are absolutely essential to the success of an organization and it’s vision, result and performance indicators are used to measure if those CSFs are met. CSFs express what needs to be done absolutely right while indicators measure what is done.

Result vs. performance indicators

Indicators are quantifiable and can be trended over time. David Parmenter distinguishes two types of indicators:

  1. Result indicators (RIs) (strategic) look at results achieved by multiple teams / initiatives across an organization. Result indicators are dealt on management level (holistic organizational overview).
  2. Performance indicators (PIs) (operative) measure the performance of a specific team / tribe with a common objective. Performance indicators are operational indicators where the responsibility is on team / tribe level.

(cf. Parmenter 2020:3ff, 2020:16)

(Key) Result Indicators

“Result indicators (RIs) summarize the activity of more than one team. They are good to review as an overview how teams are working together. The difference between a key result indicator and a result indicator is simply that the key result indicator is a more overall and more important summary of activities that have taken place.” – Parmenter 2020:5

Result indicators (RIs) cannot tell you what drives business results but rather show you the impact (result) of teams in different areas working together. Financial indicators are thus result indicators as they combine the work of a number of teams such as sales, manufacturing, quality assurance, etc.

Examples of result indicators might include:

  • Return on capital employed
  • Net profit before tax / on key product lines
  • Net promoter score
  • Revenue per employee
  • Economic value added (EVA)
  • Customer satisfaction percentage
  • Employee satisfaction percentage

(cf. Parmenter 2020:10ff, 2020:15)

Key result indicators (KRIs)

Key result indicators (KRIs) :

Summarization of the most relevant result indicators. Examples are net profit before tax or customer / employee satisfaction. KRIs are considered on board level.

Relationship KRIs – RIs

KRIs RIs
Net profit before tax Sales made per timeframe
Customer satisfaction Number of initiatives implemented from last customer satisfaction survey
Employee satisfaction Number of employees suggestions implemented from last employee satisfaction survey

Characteristics of KRIs

Characteristics Description
Financial or nonfinancial Can be financial or nonfinancial measures
Frequency Monthly, bimonthly, quarterly
Board focus Reported at board meetings to provide a holistic overview
Non-actionable Doesn’t provide concrete insights what needs to be fixed
Responsibility Senior management; cannot be pinned to a specific team
Report Usually shown as trend graph covering the past 15 / n months
Quantifiable Example: percentage (%), number of (#), rate…

(cf. Parmenter 2020:15)

(Key) Performance Indicators

“Performance indicators (PIs) are those indicators that are nonfinancial (otherwise they would be result indicators) that can be traced back to a team. The difference between performance indicators and KPIs is that the latter are deemed fundamental to the organization's well-being.” – Parmenter 2020:12

Performance Indicators (PIs) focus on the activities of a team and help the team to align their objectives to the overall strategy.

Examples of performance indicators that are tied to a specific team / tribe might include:

  • Late deliveries to customers
  • Number of innovations implemented
  • Number of initiatives implemented after customer satisfaction survey
  • Number of late projects
  • Calls on hold longer than n seconds
  • Number of key customer complaints
  • Percentage of large purchases from certified vendors
  • Completion of projects on time

(cf. Parmenter 2020:12ff, 2020:277ff)

Key performance indicators (KPIs)

Key performance indicators (KPIs):

Think of a 24/7 health check of your organization: KPIs inform how a team / tribe is performing by focusing on the most critical aspects that drive the current and future business success. KPIs are operational indicators towards the desired outcome!

Relationship KPIs – PIs

KPIs PIs
Number of late deliveries to key customers Number of late deliveries to any customer
Number of complaints from key customers that have not been resolved within 24 hours Callers giving up waiting in call center hotline

Characteristics of KPIs

Characteristic Description
Nonfinancial Not expressed in euros, etc.
Frequent measure 24/7, daily or weekly
Management focus Acted on by senior management team
Actionable All staff can understand required actions
Responsibility Responsibility of action is linked to a specific team / tribe
Impact Has a significant impact on core CSFs and balanced scorecard perspectives
Tested Has been tested to ensure they have a positive impact and cannot be cheated
Quantifiable Example: percentage (%), number of (#), rate…

(cf. Parmenter 2020:10, 2020:15, 2020:190)

Key takeaways

Performance and result indicators are integral to the organizational strategy as they provide measurable insights into whether the organization’s critical success factors (CSFs) are being achieved.

Result Indicators (RIs) offer a high-level overview of the collective performance across multiple teams, highlighting the outcomes of their collaborative efforts.

Performance Indicators (PIs) focus on the specific team / tribe performance, aligning their objectives with the overall strategy.

KPIs and OKRs

Health monitoring

Think of KRIs and KPIs as a 24/7 health check of your organization. You want to continuously monitor that your organization is healthy.

Taking actions

While result indicators (KRIs) are monitored on senior management level and don’t suggest concrete actions as the monitored results represents consolidated data across the organization, performance indicators are actionable as they are tight to the responsibility of a specific team or tribe. Problems in KRIs or OKRs are warning signals that there are more fundamental issues at hand.

OKRs are about near time change. It’s about a focused direction of change (objective) and the desired outcomes (key results) within a certain time frame. If you want to improve KPIs you can use OKRs to target very specific and timebound changes.

OKRs are actionable. They are used to make long term strategic changes via clear near time objectives happen. The responsible team identifies how those objectives can be translated in concrete actions that are measurable. A key result expresses the outcome of this action together with a metric for success / failure validation. If the validation is negative, id est the action taken didn’t deliver the desired outcome, the action is adjusted. OKRs are iterative and designed to fail and learn fast in order to take the right actions.

Strategic agility

It can take months to cascade a strategy across an organization. Another reason, why OKRs became popular, is its power to adapt quickly to unforseen changes and disruptions.

  • OKRs have a near-time focus with short update-cycles,
  • allow taking action fast and
  • teams can quickly adjust to new situations instead of waiting until a new strategy has been rolled out across the whole organization.

(cf. Wilsey 28:00)

Key takeaways

KRIs and KPIs are about monitoring the health of the organization. Health understood in measuring how well strategic goals are met.

OKRs are about near time changes or course corrections. OKRs are not part of the strategy but help to make strategy happen by concrete focused and measurable actions.

References and further reading

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