Strategizing with Key Performance Indicators

By Elizabeth (Lizzy) Brahin

 

Anyone can create an organization, so how do you know if it is legitimate? Look at its impact.


Promoting organizational impact benefits everyone: leaders, investors, and the public. In fact, “More than 90% of the CEOs believe that measuring total impact help[s] their businesses identify and manage risks more effectively” (PwC 2013). Impact paints a clearer picture of an organization’s operations and success in carrying out its mission, helping demonstrate credibility and future potential.


How do you calculate this impact? Key Performance Indicators (KPIs) are quantifiable metrics that measure performance. With the prevalence of technology today, many companies have a plethora of data at their fingertips. Though, not all metrics are created equal: few are useful, some are interesting, and many are insignificant. According to Kevin Knapp, CFO of Hireology, “It’s best to have 5-7 KPIs and determine what matters, with a mix of both financial and operational indicators.” Earnings Per Share (EPS), for example, is a common metric “used by about half of all companies'' (Harvard Business Review 2013).” However, industry/company-specific metrics better predict performance. At Hireology, they found operational KPIs such as the Net Promoter Score, the likelihood a client would recommend the product to a friend, or financial KPIs like the Churn Rate, the rate of subscription cancellations, are more indicative of future revenue.


Nonprofits also use KPIs. While nonprofit KPI trends previously focused on statistics such as program reach, priorities evolved. Tracy Frizzell, Executive Director of the Economic Awareness Council (EAC), noted, “There has been a shift to indicators that demonstrate change rather than purely impact and outreach.” For example, EAC tracks attendance data but also emphasizes participant knowledge gain and behavior change. EAC's KPIs show that their financial education programs go beyond just talking to teens and translate into better real-world financial decisions. EAC funders see how their programs impact people's lives long beyond their engagement in workshops and presentations. Strategic use of KPIs allows them, and many other nonprofits, to expand their impact.


KPIs are prevalent in all types of organizations, but there is great variation in the types of KPIs prioritized. Now, how will you use KPIs to quantify the impact of your next venture?