Myth #4: All performance measures are KPIs

September 13, 2013

This is the third in a series of blog posts by guest blogger and Decision Day 2013 Key Note Speaker David Parmenter examining the six most common myths related to performance monitoring.

You can see read post one and post two.

Myth #4: All performance measures are KPIs

Organizations across the globe have been using the term “KPIs” to signify all performance measures. No one seems to worry that the KPI had not been defined by anyone. Thus, measures that are truly key to the enterprise are being mixed with measures that are completely flawed.

Let's break the term down. “Key” means key to the organization, “Performance” means that the measure will assist in improving performance.

I have come to the conclusion that there are four types of performance measures. They have different functions and the frequency of measurement differs. See the exhibit below.

The types of Performance Measures (PMs)

Number of PMs

Frequency of Measurement

1. Key Result Indicators (KRIs) give an overview on the organization’s past performance and are ideal for the Board. (e.g. return on capital employed)

Up to 10

monthly, quarterly

2. Result Indicators (RIs) summarize activities of a number of teams and thus have a shared responsibility (e.g., yesterday sales).

80 or so. If it gets over 150 you will begin to have serious problems

24/7, daily, weekly, fortnightly, monthly, quarterly


3. Performance Indicators (PIs) are measures that can be tied back to a team but are not “key” to the business (e.g., number of sales visits organized with key customers next week/fortnight).

4. Key Performance Indicators (KPIs) are measures focusing on those aspects of organizational performance that are the most critical for the current and future success of the organization (e.g., planes that are currently over two hours late)

Up to 10

(you may have considerably less)

24/7, daily, weekly


The common characteristic of Key Result Indicators (KRIs) is that they are the result of many actions. They give a clear picture of whether you are travelling in the right direction, and of the progress made towards achieving desired outcomes and strategies. They are ideal for governance reporting as key result indicators show overall performance and help the Board focus on strategic rather than management issues.

KRIs do not tell management and staff what they need to do to achieve desired outcomes. Only performance indicators and KPIs can do this.

KRIs are measures that have often been mistaken for KPIs and examples of these are (for an airline, for example):

  • Customer satisfaction
  • Employee satisfaction
  • Return on capital employed
  • Plane loadings (passengers/ freight)

Separating out KRIs from other measures has a profound impact on the way performance is reported. There is now a separation of performance measures into those impacting governance (up to 10 KRIs in a Board dashboard) and those RIs, PIs, and KPIs impacting management.

Probably the most controversial statement in my work has been that every KPI on this planet is non-financial. I argue that when you have a pound, dollar, or Euro amount you simply quantified an activity. Whilst financial measures are useful, they are RIs, not KPIs.

The seven characteristics of KPIs discussed in my book are:

  1. It is a non-financial measure (not expressed in dollars, Yen, Pounds, Euro, etc.)
  2. It is measures frequently (e.g. 24/7, daily, or weekly)
  3. It is acted upon by the CEO and senior management team
  4. All staff understand the measure and what corrective action is required
  5. Responsibility can be tied down to a team
  6. Significant impact (e.g. it impacts on more than one of the critical success factors and more than one balanced scorecard perspective)
  7. The encourage appropriate action (e.g. have been tested to ensure they have a positive impact on performance, whereas poorly through measures can lead to dysfunctional behavior)

Monthly measures will never change anything. Imagine telling a race horse owner that their prize race horse went missing some time last month.  Measures that matter are reported 24/7, daily or weekly.

Examples of KPIs are:

  • Planes late by more than X hours or X minutes. This would be measured 24/7 and would focus staff on the important issue of getting a plane back on time even though it was not a problem of their own making.
  • Late deliveries to key customers. By focusing only on timeliness of deliveries to key customers we are telling staff to focus on these shipments first. If you measure all deliveries, staff would pick the easiest and smallest deliveries in order to achieve a high score, sacrificing the large complex orders to the key customers where organizations typically make most of their profit.
  • Number of CEO recognitions of staff achievements planned for next week or next fortnight. Recognition is a major motivator and great CEOs are good at giving it frequently. As Jack Welch says "Work is too much a part of life to not recognize moments of achievement." This would be reported each Friday morning so that the CEO has the opportunity to say, "There must be more teams we can celebrate next week, please find them and organize it." Invariably, in non-performing organizations everybody is too busy chasing their tails to stop and celebrate success. This is why this measure deserves to be called a KPI.

The winning KPIs methodology clearly indicates that KPIs are a rare beast. These important KPIs are reported immediately and thus will never find their way into a balanced scorecard that is reported to the senior management team two or three weeks after the month end.

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