What is a key performance indicator (KPI)?

A key performance indicator (KPI) is defined as a measurable value that demonstrates how effectively an organization is achieving its key business objectives. Organizations use KPIs to evaluate their success at reaching targets. The essence of KPIs lies in their quantifiable nature, making them essential tools for assessing performance over time and across different areas of the business. This measurable aspect allows organizations to determine progress and make data-driven decisions based on solid performance metrics.

The concept of a KPI serves a fundamental purpose in aligning individual and departmental performance with the strategic goals of the organization. For example, increasing sales revenue, customer satisfaction scores, or production efficiency can all be KPIs that indicate how well the organization is performing in key areas.

In contrast, while statistical methods and qualitative assessments are important, they do not encapsulate the specific, outcome-focused nature that defines KPIs. Subjective measures, such as employee satisfaction, do play a role in understanding organizational health, but they lack the objectivity and quantifiable metrics that are characteristic of KPIs, which focus more on measurable outcomes.