KPIs and dashboards: what are they and what are they for?
A definitive document to know the importance of including them in your strategy.
12 min.What is a KPI?
Imagine that you command a ship in the middle of the ocean. How would you know if you are navigating correctly to your destination? This is where the famous KPIs , or Key Performance Indicators, come into play . They become your compass within your strategy: they are a measurable and quantifiable metric that helps you track your progress towards a specific goal.
KPIs are not just numbers; They are beacons that illuminate the path to success. These indicators allow companies to identify their strengths and weaknesses, make data-driven decisions, and adjust their course to optimize performance.
Let’s look more specifically at an example:
Let’s say you own a clothing store and you must sell 100 shirts per month to be profitable. Therefore, you set your KPI at 100 shirts per month. At any time you can compare the number of shirts you have sold and your goal of 100 shirts, and you will be able to see if you are on track to reach it. If this rate increases, the store is on the right track; If it decreases, it’s time to adjust the strategy.
You will be able to define indicators for any measurable activity and these indicators will help you know at any time if the performance is aligned with the defined objective.
In companies these objectives can be:
- General: measure general performance
- From a sector
- Of an individual
Table of Contents
What are the different types of most used business KPIs?
What is the best way to measure with a KPI??
What is the difference between a KPI and a metric?
How can we visualize the company’s KPIs?
What are the benefits of visualizing KPIs in software?
How to create a KPI dashboard?
Example of a KPI:
In short, key performance indicators (KPI) are the objective that you have in your sights (your focus) and for which you work in a given time. We could also say that it is a way to measure whether an action is effectively responding to the objectives proposed by your business.
What are KPIs for?
More committed employees
Imagine an orchestra without sheet music. Each musician would play a different melody, without any coordination. The same thing happens in organizations without KPIs. Employee engagement is the symphony that drives results. KPIs act as the score, unifying employees towards a common goal.
Various studies show that organizations with an engaged workforce achieve 21% higher customer engagement, productivity and profitability. The secret? The connection between KPIs and engagement.
Facilitates control and monitoring of objectives
Imagine a soccer game without a scoreboard… How would you know who is winning? KPIs are like the scoreboard of the business game. They facilitate control and objectively monitor the set objectives. If the goal is to increase sales, a KPI could be quarterly percentage growth, that is, a clear marker to measure progress.
Team and company mission aligned
A strong purpose is the moral compass of an organization. But how to connect that purpose with concrete actions? This is where KPIs come in, as they must be intertwined with the organization’s mission. “Making money” is not an inspiring mission; KPIs should reflect a deeper purpose for employees to emotionally connect with their work. Eliminating any ambiguity is key. KPIs should work in harmony with the end goal, ensuring everyone clearly understands their purpose and the impact they can have on the overall mission.
Collaborators: responsible for performance
KPIs don’t just measure individual performance; They also encourage collective responsibility. By incorporating KPIs into performance management, each employee understands how their daily actions contribute to the overall success of the organization. This not only improves individual performance but also drives organizational success.
By incorporating KPIs into performance management, each employee can measure their impact. This not only improves productivity but also aligns everyone towards business success.
What are the different types of business KPIs?
There are several types of KPIs that can be used to measure your company’s performance:
- Profitability KPI
- Liquidity KPI
- Cashflow KPI
- Sales KPI
- Logistics KPIs
- Activity KPI
- Marketing KPIs
- eCommerce KPI
There are several types of KPIs that you can use to measure the performance of your company:
Profitability KPI
These indicators focus on the company’s income statements, both profitability at its different levels, as well as gross and operational profitability and the expenses necessary to achieve it.
Liquidity KPI
These indicators are key tools for evaluating a company’s ability to meet its short-term financial obligations.
Cashflow KPI
They serve to evaluate the financial health and efficient management of a company’s financial resources.
Sales KPI
They are used to track transaction performance. They can include metrics such as turnover, average purchase value.
Logistics KPIs
They are metrics used to evaluate and measure the performance and efficiency of logistics operations in a supply chain, such as inventory turnover, accuracy, complete and on-time deliveries.
Operational KPIs
Operational or also called activity KPIs measure the efficiency of your operations and processes. They may include metrics related to production, quality control.
How to set a good KPI:
Now that we have the definition of KPIs, let’s review the basics of establishing them.
While you can take inspiration from industry-recognized KPIs, the ones you set should be unique to your business and your company’s goals.
Let’s look at some examples of good and bad indicators:
KPIs in the distribution sector
- Bad KPI:
– «Increase the number of products shipped».
– Problem: This KPI is vague and does not specify what aspect of shipping is being improved, nor does it set clear goals.
2. Good KPI:
– “Reduce order processing time at the distribution center by 20% over the next quarter.”
– Justification: This KPI is specific, measurable and has a defined time frame. It helps improve operational efficiency and has a direct impact on customer experience.
Other examples of poorly defined KPIs
Define clear objectives:
– Bad KPI: Improve profitability
– Good KPI: Bring the company’s gross margin from 35% to 50% in the next 12 months.
Be Quantifiable:
– Bad KPI: “Increase customer satisfaction.”
– Good KPI: “Achieve a customer satisfaction score of at least 90 in quarterly surveys.”
Establish Temporary Deadlines
– Bad KPI: “Increase sales.”
– Good KPI: “Increase monthly sales by 10% in the next six months.”
Incorporate Specific Data:
– Bad KPI: “Improve warehouse efficiency.”
– Good KPI: “Reduce inventory errors in the warehouse by 20% by implementing advanced scanning technologies in the next three months.”
Align with Strategic Objectives:
– Bad KPI: “Increase staff hiring.”
– Good KPI: “Maintain an employee turnover rate of less than 8% to ensure continuity and experience in the distribution chain.”
– “Reduce order processing time at the distribution center by 20% over the next quarter.”
– Justification: This KPI is specific, measurable and has a defined time frame. It helps improve operational efficiency and has a direct impact on customer experience.
Other examples of poorly defined KPIs
Define clear objectives:
– Bad KPI: Improve profitability
– Good KPI: Bring the company’s gross margin from 35% to 50% in the next 12 months.
Be Quantifiable:
– Bad KPI: “Increase customer satisfaction.”
– Good KPI: “Achieve a customer satisfaction score of at least 90 in quarterly surveys.”
Establish Temporary Deadlines
– Bad KPI: “Increase sales.”
– Good KPI: “Increase monthly sales by 10% in the next six months.”
Incorporate Specific Data:
– Bad KPI: “Improve warehouse efficiency.”
– Good KPI: “Reduce inventory errors in the warehouse by 20% by implementing advanced scanning technologies in the next three months.”
Align with Strategic Objectives:
– Bad KPI: “Increase staff hiring.”
– Good KPI: “Maintain an employee turnover rate of less than 8% to ensure continuity and experience in the distribution chain.”
Remember that each KPI must be specific to the goals and circumstances of your company, and its design must facilitate decision making and continuous improvement.
What is the best way to measure with a KPI?
A common question is: “How do I best define my company’s KPIs?” Without a doubt, the best way to do this is to use the SMART model.
The SMART model is a commonly used method for defining and setting goals and KPIs. SMART is an acronym that represents five criteria that objectives must meet to ensure their effectiveness. These are:
1.Specific: The objectives must be clear and specific, avoiding ambiguities. They must answer the questions of who, what, when, where and why.
2. Measurable: They must be quantifiable; be able to be measured in some way to evaluate your progress and success. Establishing quantitative indicators helps to carry out objective monitoring.
3. Achievable: Objectives must be realistic and achievable, taking into account available resources. It is important to set challenging but achievable goals.
4. Relevant: Objectives must be relevant and aligned with the broader objectives of the organization. They must contribute to overall success.
5. Time-bound: Objectives must have defined deadlines. Establishing a time frame gives us a sense of urgency and helps maintain focus. Deadlines also make it easier to evaluate progress.
If you want to extend the SMART framework, you can make it even SMART by adding evaluation and re-evaluation to the measurement. KPIs should not be one-size-fits-all: constant evaluation is key to ensure they are achievable and on track.
When you apply these five criteria to the definition of KPIs, you ensure that the indicators are clear, measurable, realistic, relevant and limited in time. This not only helps in effective management and supervision, but also facilitates communication and understanding of objectives for both team members and stakeholders.
What is the difference between a KPI and a metric?
Metrics and KPIs are related concepts but with certain differences in the business field. Here we give you a brief explanation of both and some examples:
1 Metrics:
– Definition: A metric is a quantitative measure used to evaluate, track, or quantify the performance of a process, activity, or area in a company. They can be simple numerical measurements or percentages that provide information about different operations and functions.
– Examples:Monthly sales, number of visitors to a website, customer response time, operating costs, among others.
2. KPIs (Key Performance Indicators):
– Definition: KPIs are specific metrics that are directly linked to a company’ s strategic objectives. They represent critical aspects of performance that are essential to its success. KPIs provide a clear view of whether the organization is achieving its goals and objectives.
– Examples: Net income, profit margin, customer satisfaction, customer retention, market share, among others.gresos netos, margen de beneficio, satisfacción del cliente, retención de clientes, cuota de mercado, entre otros.
Key differences:
– Relevancia estratégica: Los KPIs están fuertemente alineados con los objetivos estratégicos de la empresa, mientras que las métricas pueden ser más generales y no necesariamente estar vinculadas a los objetivos clave.
– Importancia para el éxito general: Los KPIs son esenciales para medir el rendimiento y el éxito general, mientras que algunas métricas pueden ser más tácticas y emplearse para evaluar puntos concretos del negocio.
Ejemplos de Métricas que no son necesariamente KPIs:
– Número total de correos electrónicos enviados por el equipo de marketing.
– Cantidad de material de marketing producido en un mes.
– Número de horas dedicadas a capacitación de empleados.
Estas métricas pueden proporcionar información valiosa sobre el rendimiento de ciertos aspectos del negocio, pero no necesariamente están directamente vinculadas a los objetivos estratégicos clave de la empresa. Los KPIs, por otro lado, son seleccionados cuidadosamente para medir el éxito en áreas críticas para el logro de los objetivos organizativos.
How can we visualize the company’s KPIs?
As there are many indicators that refer to all areas of the company, it is vital to define the most convenient way to have them at hand to analyze them.
Option 1: KPI Report
This is a summary of all the key KPIs you have for the whole company or a specific area, in spreadsheet or report format or printable.
Option 2: Dashboard or Control Panels
Dashboards are a visual tool that provides a graphical representation of key performance indicators and other important data for tracking and decision making.
These dashboards typically present information in a clear and easy-to-understand manner, allowing managers and decision makers to get a quick and complete view of the company’s performance in real time.
Characteristics of a dashboard
Some common characteristics of a dashboard are:
– Visual representation:
Uses graphs, charts, and other visual elements to represent information in a clear and understandable way.
– Real-time data
Provides up-to-date, real-time information so that users can make decisions based on current information.
– Customization:
Allows users to customize the dashboard to their specific needs and preferences.
– Accessibility:
It can be accessible from different devices, such as computers, tablets or cell phones. Thus, users can access information anytime, anywhere.
The effective implementation of a dashboard can help monitor business performance, identify trends, analyze patterns and make data-driven decisions more quickly. In addition, by providing a consolidated view of key information, dashboards facilitate communication and team alignment towards the organization’s strategic objectives.
What are the benefits of visualizing KPIs in software?
En algún momento, es posible que te preguntes: “¿Por qué necesito un software cuando puedo usar una hoja de cálculo?”
Y si bien es cierto que puedes generar tus indicadores manualmente con planilla Excel, las hojas de cálculo tienen sus limitaciones . Ofrecen visualizaciones de datos limitadas (gráficos circulares, gráficos de barras, etc.) y se requiere mucho tiempo y esfuerzo manual para configurar un informe.
Las hojas de cálculo también requieren un mantenimiento manual y regular para mantener sus datos actualizados.
Por otro lado, el panel y las herramientas de generación de informes automatizan la recuperación de datos directamente desde su fuente de datos para que el esfuerzo manual sea mínimo, y la confiabilidad total.
The implementation of a management dashboard in a company offers several key advantages that contribute to improving efficiency, decision making and overall performance.
Let’s look at the advantages of implementing a dashboard:
– Integral Vision:
Management dashboards provide a consolidated, real-time view of the company’s performance. This enables leaders to gain a quick and complete understanding of the overall situation.
– Quick access to key information:
Key information is presented visually, facilitating quick access to relevant data. This is crucial for timely decision making.
– Informed decision making:
By having up-to-date data and clear visual representations, decision makers can perform deeper analysis and make evidence-based decisions.
– Problem and opportunity identification:
Dashboards enable quick identification of areas of concern or areas of opportunity. Visual representations help detect trends, patterns and anomalies efficiently.
– KPI tracking:
Dashboards are often designed to show specific KPIs that are aligned with strategic objectives. This simplifies the view of performance and progress toward predefined goals.
– Improved internal communication:
By presenting data in a visual and understandable way, dashboards facilitate internal communication. All team members can understand performance and objectives.
– Operational efficiency:
Rapid problem identification and the ability to monitor processes in real time help improve operational efficiency across the enterprise.
– Customization and flexibility:
Most dashboards are customizable, meaning that users can tailor the visualization according to their specific needs and roles within the company.
Overall, a well-implemented management dashboard can be a valuable tool to drive strategic decision making, improve efficiency and keep the entire company focused on achieving its objectives.
How to create a KPI dashboard?
1. First of all, it is essential to define the objective. Here are some ideas:
Share indicators with people who find it difficult to read raw data?
Convince management to make decisions?
Monitor the performance of online activities?
Then identify who this dashboard will be for:
What area of the company is the dashboard for?
Will it be for specific roles?
Who are the stakeholders?
2. Select the right KPIs:
Focus on a concise set of metrics that give a clear and meaningful picture of your business progress. You don’t need all of them to make a complete report.
3. Choose the right visuals:
What elements will help you effectively convey the information you have at a glance? Examples include charts, graphs, graphs, indicators and tables.
4. Design the view:
Organize the KPIs logically, considering factors such as hierarchy and thematic groupings. Keep the design clean, orderly and easy to visualize.
