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We love to classify types of KPIs. Lead versus Lag. Input versus output. Strategic versus operational. What’s the most useful way to do it?

One of the reasons we can be so confused about KPIs and performance measures, is that there’s a lot of quasi information readily findable through an internet search. It’s hard to get a complete and thorough answer to just about any KPI question.

One of the commonly Googled KPI questions is “what are the types of KPIs?”

When you ask a search engine this question, many of the higher ranking search results only answer part of it. Or they answer it in a way that’s not fully useful. Like these:

• leading and lagging KPIs
  • >> but some KPIs can be both, and some can be about performance right now, as opposed to past or future
• input, process, output, outcome KPIs
  • >> this is about the only one that, if used on its own, can still be useful, but it’s not the only way to classify KPIs
• revenue improvement, cost reduction, process improvement and customer KPIs
  • >> but these are not the only types of results that can and should be measured by KPIs
• a list of commonly used KPIs, like Time to Market, Lead Time, Stock Out, Marketshare, and more
  • >> but these aren’t types at all, rather just examples of KPIs
• binary or absolute, comparative, or trend-based
  • >> but any KPI be all three of these

None of these is sufficient on its own, and all of them lack some kind of rational framework for how types of KPIs can be meaningfully and usefully classified.

Why bother classifying the types of KPIs?

I’m not entirely sure. I don’t believe we need at least one of every possible type of KPI. And I don’t believe it’s always useful to use the classifications in how we report or interpret performance. What’s more useful is the process we follow to select, implement and use KPIs to monitor and improve business performance.

But just for the exercise, following is what I’d consider are useful and comprehensive dimensions for a framework to classify types of KPIs. To me, useful means that it will help us decide where, when and how to use each KPI for its intended purpose:

1. Perspective in time: what a KPI might tell us about the past, the present, or the future.
2. Level in the organisational system: what a KPI might tell us about activity performance, process outcomes, organisational results, or stakeholder value.
3. Focus of application: what a KPI might tell us about strategy or change, about compliance or regulation, about continuous improvement, about risk, about routine work, or about employee performance (I fundamentally disagree with this last one).

Classifying all the types of KPIs is not a trivial exercise.

Clearly a KPI might fall into several of those dimensions listed above, or their parts. Ponder these:

• On-time Arrival Rate of planes might be a lag indicator of the end-to-end flight process, but it’s also a lead indicator of Customer Retention Rate. It’s certainly a KPI that operational teams will monitor routinely, but for some organisations it can be strategically important too.
• Resolution Time might be a useful measure for the routine work of resolving trouble-tickets, but it can also be the focus of a continuous improvement program. It’s also a lag indicator of the trouble-ticket process, and a lead indicator of customer productivity.
• Water Consumption is a KPI that a park maintenance team will use to guide their daily garden watering activities. And maybe management will use it to assess how well they’re complying with water usage guidelines. But it’s also a KPI that the leadership team will monitor over time, if part of their strategic direction is to reduce environmental impact.

Therefore, a classification of the types of KPIs is not going to be a linear and simplistic placement of KPIs into one of several buckets. It’s going to be multi-dimensional.

The types of KPIs are multi-dimensional.

We can easily waste too much time worrying about it. It’s more useful to be clear where, when and how different KPIs should be used.

So for each KPI you have, ask these questions:

1. Perspective in time: Does this KPI help me learn from the past, or decide what I have to do now, or prepare for what’s likely to happen in the future?
2. Level in the organisational system: Is this KPI best used by teams whose work directly influences it, or by managers who can realign resources to improve it, or by leaders who can realign the organisational system or culture to achieve it?
3. Focus of application: Does this KPI monitor strategy or change, assess compliance or regulation, trigger continuous improvement, flag risk, or guide routine work?

Using KPIs for their intended purpose is a much better use of time than trying to put them into buckets.

Worry less about all the buckets of types of KPIs. Worry more about when, where and how to use each KPI for its intended purpose.
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DISCUSSION:

My framework of the types of KPIs is probably all wrong. What’s missing? What’s important? What’s useful?