Performance Indicators: Measures and Decision-Making Tools to Drive Performance

Managers at both large and small companies have key performance indicators as part of their toolkit. They can be applied to the whole company, or used at different levels such as within a department, team, or project, depending on the measures to be followed. An effective indicator lets you know if your organization is on the way to achieving its objectives, and gives you the chance to rectify any issues that come up. Ensuring that your managers are up to date on this area could help with your organization's growth.

In this article, we will discuss how performance indicators support decision-making to achieve results, optimize performance, and increase profitability, as well as how to apply them to human resources management.

What are key performance indicators?

Shrewd entrepreneurs know the importance of setting targets and measuring results to optimize profitability and productivity. A key performance indicator, or KPI, is an indicator used to measure the performance of an organization or activity in relation to its key success factors.

KPIs can be applied to all facets of a business, such as marketing, finance, sales, production, customer support, procurement, or talent management.

Here is a relatively simple, but very effective, example: the economic value of the customer (lifetime value, or LTV) is an estimate of the duration of use of a product or a service by a customer. This metric indicates the total income that a customer can bring in throughout their relationship with the company. By comparing this indicator to the cost of customer acquisition, the company can see if it is spending too many resources to acquire customers who are not loyal to the company. It will then be able to adjust its marketing and acquisition strategies to better achieve its objectives.

What are performance indicators used for?

Key performance indicators measure the performance of an activity by comparing results obtained with the objectives that have been set. They are a precise and quantifiable measurement that can be used to build a smart dashboard. A thorough knowledge of KPIs is an asset for anyone in a leadership or management position.

The usefulness of performance indicators goes beyond the need for measurement. The information collected is best used as part of continuous improvement and communication within the company. Performance indicators can be used to raise high-impact issues. They serve as a starting point for discussions leading to strategic and tactical decision-making. In other words, when used well, they result in practical initiatives and actions.

Most companies use KPIs to measure their growth, support decision-making, and decide how to allocate funds to their various departments. KPIs are also used to make comparisons with competitors or industry best practices, always with the aim of optimizing and improving performance or profitability. Without a series of quantifiable measurements, it becomes impossible for an organization to know if its strategies are sound and to evaluate the progress of its activities. This is especially true when a company is growing rapidly or its model is decentralized.

Using technology to measure performance indicators

Thanks to increasingly sophisticated technology, it is now possible to synthesize a vast amount of data to measure and track an organization's key performance indicators, such as the general state of finances or operational performance. Industry 4.0 or business intelligence technologies now make it possible to automate data collection and analysis, to display them directly in real time, and to compile summaries and custom graphics.

Examples of key performance indicators

Setting up KPIs often starts with financial metrics: cash flow, profit margins, revenue, budget variances, and market share. Nevertheless, a company can adopt strategic or functional performance indicators to monitor all its activities, evaluate the performance of different departments, and facilitate decision-making. For instance, it can measure the attrition rate or customer acquisition cost, or procurement delays or the number of returns.

Performance indicators for talent management

Indeed's quarterly Labour Market Update details changes in the Canadian job market over the past quarter and changes by sector since 2020. While some sectors appear to be weakening, demand for skilled labour remains strong on a national scale. Indeed, several sectors of the Canadian economy are now affected by the mass departure of employees. According to Randstad figures, 36% of blue collar workers in Canada left their jobs in 2021, together with 21% of white collar workers.

In 2021, Statistics Canada carried out the Survey of Employers on Workers' Skills. More than two-fifths of companies (44.5%) had difficulty finding candidates with the required skills. The majority of these companies (55.4%) indicated that the main reason they were having difficulty recruiting candidates was “Not enough people interested in doing the type of work required.”

Faced with these challenges, human resources departments need decision-making tools to optimize hiring and employee retention. These challenges are daunting for many companies. In their simplest version, HR performance indicators can be used to show a payroll chart or total headcount by department. To support diversity and inclusion efforts, it would be useful to see the distribution of employees by gender, an age pyramid, or gender pay gap.

Indicators are a powerful tool for tracking workforce performance, revenue per employee, employee turnover rate or absenteeism rate.

Here are some other examples of employee-related indicators you could measure:

• Training costs per employee
• The average amount spent on integrating new employees
• The success rate of hiring campaigns
• The progression of the number of work accidents per month
• The results of internal employee surveys
• The gaps between the skills required and the skills in place for providing a service

These measures can be important assets in support of recruitment, hiring, and retention strategies. They enable talent managers to judge the current state of affairs. They can help create a climate of discussion, focused on continuous improvements based on real and current data.Well-thought-out performance indicators are a strategic decision-making tool that can pave the way to awareness and practicable actions. They help your company and its various departments to measure results and to stay on track to achieve company objectives.