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Measuring up: winning with KPIs

– By Edward Cox

Identifying the correct key performance indicators (KPIs) has significant benefits for any business. But too often these values – which help demonstrate how effectively a company is achieving its key business objectives – are poorly understood and executed, difficult to measure, meaningless, confusing or even in conflict with ultimate business goals.

Working across a range of industries, we have witnessed KPIs that, while appearing sensible, have in fact cost the client hundreds of thousands of pounds annually. For example, a print maintenance services company we worked with had KPIs covering ‘first time fix’, ‘low recall rate within 10 days’ and the ‘number of site visits per day’. At first glance, these KPIs appeared to highlight engineers who were providing a good service. But in actual fact they were hiding a critical metric – how many visits it was taking each engineer to do a job. What’s more, this meant that an engineer could ‘work the system’ by doing temporary fixes, ultimately leading to poor client satisfaction.

In another case, we witnessed how staff can end up blindly following KPIs to the detriment of the company. In a rental business we worked with staff were being given bonuses based on product availability. This effectively led to managers preferring to keep products on the shelf rather than renting them out, therefore reducing revenue.

So how do you identify and implement the right KPIs?

Brevity is key in identifying KPIs. If you measure too many things, often you’re really not measuring anything at all. Any given businesses only requires two or three indicators at a high level, these should be cascaded down in a way that makes them understandable to all staff without removing them from the high level business objective; for example, maximising revenue, profit, or building a customer base. Or, if you’re trying to sell a business, your KPIs might look at value more than profit.

KPIs should have a strong purpose, be closely connected to business objectives, and supported by robust, accurate data. Everyone should have visibility of KPIs, trust them, and be engaged in the process of choosing and upholding them.

A strong methodology for creating effective KPIs is to measure them against the five Cs checklist:

  • Connect – how do KPIs relate to or influence each other, and do they support the highest-level business objectives?
  • Conflict – do KPIs cause conflicting behaviour across different teams or groups?
  • Concise – are KPIs easy to understand and are there as few as possible?
  • Comply – will staff engage with the KPIs and be willing to own them? Can they intrinsically motivate staff?
  • Check – always think through what you would do if governed by the KPI, would it drive you to make the right choices?

We also encourage thinking through KPIs using a split tree – a hierarchy that defines the root cause of a given occurrence. The graphic below demonstrates how ‘Increasing Market Share’ at the highest level is defined by two factors: the ‘Total Market Revenue’ and the ‘Organisation’s Revenue’.

While we may or may not have influence over the total size of the market, we do have influence over the organisation, and this is in turn defined by: the ‘Number of Customers’ and the ‘Revenue per Customer’.

As we move down the tree we can see that root causes quickly start to conflict. One scenario could be a KPI that rewards new customer sales, but not spend per transaction. For this reason, we always recommend pushing accountability up the tree.


Ensuring KPIs are strategic, relevant, and quantifiable improves the likelihood that they will successfully integrate into day-to-day operations and enhance performance.  When KPIs cascade meaningfully through an organisation, they become a strong vehicle for managerial communication with staff, helping to ensure that all levels are working in partnership to deliver the most long-term, sustainable value.

Edward CoxEdward Cox
is a procurement, supply chain and operational improvement specialist at consultants Newton Europe, who implement transformational change across a wide range of sectors including healthcare, transport, defence, local government, services, manufacturing and private equity. Newton promise to improve the financial performance of any organisation by 1.5 % – 5% of turnover by enhancing operational efficiency, service and quality. They are so confident of this fact that they stake their fee on it through a unique contingent fee model.


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