I discussed it in my last blog on why this is so important.
The human resources industry for decades has been trying to get validation in the C-suite, let alone at the board level. The vocabulary of the CCO, CFO and COO is in business terms and those terms are well established, clear and concise. KPIs (key performance indicators) are not that.
There is tremendous confusion around what exactly is a KPI and a wide variety of definitions, and rightly so. From Wikipedia:
KPIs can be summarized into the following sub-categories:
• Quantitative indicators that can be presented with a number.
• Qualitative indicators that can’t be presented as a number.
• Leading indicators that can predict the outcome of a process.
• Lagging indicators that present the success or failure post hoc.
• Input indicators that measure the amount of resources consumed during the generation of the outcome.
• Process indicators that represent the efficiency or the productivity of the process.
• Output indicators that reflect the outcome or results of the process activities.
• Practical indicators that interface with existing company processes.
• Directional indicators specifying whether an organization is getting better.
• Actionable indicators are sufficiently in an organization’s control to effect change.
• Financial indicators used in performance measurement and when looking at an operating index.
Wow. Clear and concise. Ya think?
When we developed the methodology behind what eventually became Vestrics, we eliminated KPI from our vocabulary. In thinking about following the evidence to an outcome we first looked at leading indicators that linked into business outcomes. Simply stated, leading indicators are those metrics that do not carry a financial value, but show evidence towards a business outcome. A business outcome is defined as one which carries a financial value.
Leading indicators are evidence of things to come such as engagement scores, hire fill rates, performance reviews, numbers of complaints. Business results carry a financial value such as revenue, retention/turnover, workers comp costs, cost avoidance.
When we made this change we saw people from different areas, backgrounds and titles understand these definitions and began to speak the same language, in business terms.
The line of sight to business outcomes becomes so much clearer by eliminating KPI from the vocabulary. Try it in a small group and see what happens – I dare you.