In a presentation I did earlier this year at a number of regional Association for Financial Professionals (AFP) conferences I suggested that we redefine the acronym KPI. As organizations have started to measure more activities, they are deciding on which metrics should be Key Performance Indicators, the traditional definition of the acronym KPI.
I suggest that we consider changing what the last letter in the acronym stands for. Instead of Key Performance Indicators, I suggest we determine the Key Performance Insights that the organization needs to know in order to help it reach the goals that have been set.
The difference in the definitions between the word indicator and the word insight help explain why I think insights are a better approach. According to dictionary.com, an indicator is “a thing, especially a trend or fact, that indicates the state or level of something.” This is an accurate definition of most current KPIs. They report the current state or level of a metric the organization has decided to measure.
The dictionary.com definition of insight is “the capacity to gain an accurate and deep intuitive understanding of a person or thing.” Insights go beyond simply reporting a level, they explain why the metric is at the current level. Insights are what leaders and executives are looking for.
When you move from indicators to insights you move from a focus on the level of performance to a focus on understanding the performance. In order to determine insights it takes more or different efforts than to simply collect measurements of activities. It requires the expertise and thoughts of subject matter experts.
I would go further and suggest that perhaps some or even many of the metrics organizations measure may not be necessary to determine insights. I propose that the measurement of every metric be tested against this question: “How will measuring this item identify the actions that will help us reach our goals?”
There are two key words in this question that I think help focus our efforts. The first is the word “action.” Reporting KPIs is supposed to be decision support for the leaders in the organization. Simply reporting indicators is often not action oriented. It forces the leadership group to figure out the actions without being provided the detailed background, knowledge and understanding required. Reporting insights gives the executives the recommended actions based on a deep understanding of the areas being measured.
The second word is “goals.” Every organizations sets goals on a regular basis, whether quarterly, annually, or at another frequency. If the effort in measuring an item will not result in determining what action should be taken to achieve the goals, perhaps that effort should not be expended. Instead, redirect that effort to measuring items that will result in insights. These insights help the leaders take the actions needed to reach the goals.
If you are responsible for reporting KPIs in your group, division, or organization, consider if you should redefine what the acronym stands for and how your efforts can be redirected to provide leaders with the insights they need to make decisions that will help the organization reach its goals.