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key performance indicator: a way of measuring the effectiveness of an organization and its progress towards goals
'Now that you've settled into the new year and are thinking about how to make 2014 a year of social media marketing wins, it's also time to reevaluate exactly how you're measuring your success. Have you chosen the right KPIs (key performance indicators) to best showcase the effects social is having on your marketing goals?'Business 2 Community 29th January 2014
The desire to be 'successful' in life is something that, in humans, is hard-wired from birth, though the precise definition of success can of course mean very different things for different people. In the world of business, there's a new abbreviation bouncing around which is all about the issue of success and how to quantify it in a meaningful and useful way: KPI.
the crucial thing about a KPI … is its dependence on what's identified as being important for an organization, which can of course vary greatly between one line of business and another and doesn't always directly concern money
The abbreviation KPI stands for key performance indicator, and is a measurement a business or other organization uses to evaluate its success (correspondingly sometimes also referred to as a KSI or key success indicator, though this isn't quite as common). This success is typically defined as the progress an organization is making towards achieving its overall, strategic goals, so that if for instance a company's aim is 'to be the most profitable in the industry', then KPIs will be measurements like 'pre-tax profit' and other financial parameters. The crucial thing about a KPI, however, is its dependence on what's identified as being important for an organization, which can of course vary greatly between one line of business and another and doesn't always directly concern money. In marketing or advertising for instance, a KPI might be reflected in the number of new customers acquired. In manufacturing, KPIs could relate to the efficiency of processes and product output. In IT, a KPI may equate to 'uptime' (the amount of time computer systems are available and working). These are just a few among the many examples of how the measurements of achievement reflected in business KPIs can vary just as much as the way success is evaluated in everyday life.
Though originating in the business domain, the concept of the KPI is increasingly appearing in other spheres of life too, such as health services and education. In hospitals, for example, KPIs might be figures like the percentage of patients seen within a particular time frame, or the amount of people screened for a particular condition. A KPI in a school might relate to the number of students achieving a basic number of qualifications, or in a university, the proportion of graduates finding professional employment within a specified number of months.
Though it's been around since at least the early 1990s, the abbreviation KPI, and its corresponding full form key performance indicator, is still largely confined to specialist business glossaries rather than mainstream dictionaries. The concept has attracted a degree of controversy because, in practice, KPIs can often be difficult for organizations to implement, and may even have negative fallout if employees are working to satisfy targets at the expense of the actual quality or value of their work.
The abbreviation KPI is what's technically referred to as an initialism, a term formed from the initial letters of several words which is pronounced letter by letter (and which contrasts of course with an acronym, an abbreviation pronounced as a word, compare e.g. MOOC). A related initialism in the domain of online business is CTR, standing for click-through rate and intended to give an indication of how successful an advertisement is by measuring the number of clicks it induces.
Read last week's BuzzWord article. Conscious uncoupling.
This article was first published on 16th April 2014.
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