Overview and practice of KPIs, KGIs and OKRs for problem analysis
I will discuss KPI (Key Performance Indicators), KGI (Key Goal Indicators), etc. that appear in the previous problem solving scene.
First, let’s talk about “KPI.
KPIs (Key Performance Indicators) are used to indicate key performance indicators. KPIs set by a company or organization are used to visualize and report its performance and goal achievement status to stakeholders inside and outside the organization.
KPIs have the following characteristics
- Related to goals: KPIs must be performance indicators that are related to the goals that have been set. This is because they are used to track progress toward goals and must clearly indicate their contribution to those goals.
- Measurable: KPIs must be quantifiable indicators. Quantitative data must be available to measure goal achievement.
- Be easily visualized: KPIs should be able to be displayed visually. They must be easily understood and used for decision-making by departments and individuals within the organization.
- Be time-related: KPIs must be time-based indicators. KPIs should be measured and analyzed on a regular basis to track progress in achieving goals.
For example, sales, profit margins, customer satisfaction, productivity, and employee turnover are examples of KPIs. These KPIs are used to indicate the status of goal achievement. KPIs are also used to report to stakeholders inside and outside the organization.
A reference book on KPI is “KPI Management for Effective Human and Organizational Performance.
KPIs are interpreted and used in various ways by different people. In some cases, KPIs are simply used as “indicators to manage results,” while in other cases, KPIs are used to express “target figures themselves.
KPIs are also defined as “a means of clarifying points of focus and measuring progress toward achieving (business) goals without waste.
KPIs are divided into three levels: KFI (Key Financial Indicator), KRI (Key Result Indicator), and KAI (Key Action Indicator). →The KFI defines what is the objective of the activity, the KRI defines what state will lead to the objective, and the KAI defines what actions can be taken to create that state.
KFI literally means financial indicators, such as total sales, sales amount, operating profit, market share, and other financial targets. When used in day-to-day business operations, it is considered to use KGI (Key Goal Indicator) instead of KFI because the ultimate goal is not a financial goal.
There are various interpretations of KGI, and a search on the Internet shows that KGI is the final goal, and KPI is defined as setting process goals to reach it. In this paper, I will provide an explanation based on the books mentioned above.
Since KFI or KGI only indicates the final target value, KRI and KAI are defined to clearly indicate the “process to get there.
KRI is similar to the concept of KSF (Key Success Factor), which is defined based on the “story” of how results (business performance) and actions are connected, and is the most important indicator for considering KPI. Specific KPIs include customer recommendation rate, repeat business, customer satisfaction, number of complaints, and number of customer referrals.
The “setting of the story” can be described as a hypothesis for achieving results. For example, in the case of solving a business problem, the first step is to select the target business and visualize its current status in the form of a flowchart. This is then analyzed in detail to clarify the key issues. Finally, brainstorm measures to solve the problem points and draw a flow chart of how the first task will be changed.
KAI is an indicator to grasp how many specific actions have been taken to improve KRI. Specifically, it includes the number of visits to customers, the number of articles sent out, responses from inquiries, new contacts, and the number of sales promotions conducted by stores.
There are two types of KPIs: the top-down type, which comes down from the top management, and the bottom-up type, which starts from the issues in the field. The bottom-up approach is used when conducting verification experiments (POC) or when conducting improvement activities in the field.Methods such as Fermi estimation are also effective in setting quantitative goals for KPIs.
In the next article, I would like to discuss OKR, a new approach to replace KPI.
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