People often tell me they don’t want KPIs, they want ‘SMART KPIs’. It’s a common misconception that KPIs need to be SMART to be effective. Yet, in fact, there’s no such thing as a SMART KPI – it’s your objectives or goals that need to be SMART.
In this article we’ll clear up the confusion between KPIs, objectives and targets, and look at the most effective way to create and use KPIs in your business.
Setting SMART goals
SMART objectives or goals are wonderful things because they bring clarity, structure and measurability, turning a vague aim into something much more realistic. As you probably know, SMART stands for:
- Specific: What exactly do you want to achieve?
- Measurable: How will you identify that you have achieved your goal?
- Achievable: Is your goal really attainable?
- Relevant: Is it relevant to you or, in other words, does it align with where you want to be?
- Time-bound (or timely): When will you deliver your goal, and what are the key milestones?
These SMART factors are incredibly useful when it comes to setting goals. But not so much when it comes to KPIs…
A goal isn’t a KPI
Although the terms are sometimes (incorrectly) used interchangeably, a KPI is not the same thing as a goal or objective. The goal is the outcome or result that you want to achieve. The KPI is a metric or indicator that tells you whether you’re on track to achieve that goal.
Confusing the two can have negative consequences, in that people may focus on the KPI instead of the goal. For example, say a business wants to increase sales. A high percentage of sales come from email marketing, so they decide to focus their efforts on increasing the size of the email list. The team runs a series of campaigns to boost opt-ins to the email list and, sure enough, the email list grows. However, these email addresses aren’t well targeted and sales stay flat.
The team believes they met their goal: growing the email list. But growing the email list was the metric, not the goal itself. The goal was more sales.
Let’s break down the difference with another example, and add another layer into the mix: targets.
- First, the company sets an objective. In this case, the objective is to improve manufacturing quality.
- How can the company measure progress towards this strategic objective? One good indicator would be reduced manufacturing waste.
- A KPI is designed to measure waste.
- But the company needs a target for that KPI to define what success looks like.
- In this case, the target is to reduce manufacturing waste by 10% by December 2019.
As you can see, to be most effective, KPIs need accompanying targets. And, just as with objectives, it’s important to understand that KPIs and targets are not the same thing.
To sum up the relationship between goals, KPIs and targets, you start with a strategic objective or goal, then you decide how to measure that objective using KPIs, then you define the right targets for those KPIs.
Forget SMART KPIs. This is how to create effective KPIs
You might think that if you start with SMART objectives, the rest will fall into place easily. But, in my experience, SMART objectives don’t always translate into good KPIs.
To create the most effective KPIs for your business, follow these steps:
- It all starts with strategy, so begin with your very top-level strategy and establish or review your company’s mission (purpose) and vision (ambition) statements.
- Then, with your mission and vision in mind, create a simple one-page plan that captures your most important strategic objectives.
- Remember, your company objectives aren’t just about financial goals. Consider also customer goals, operations goals, resources goals, and competition and risk goals.
- For each goal, define the KPIs that will allow you to monitor and measure success.
- Then for each KPI, set clear targets that define what success looks like.
- Your work doesn’t end there. Make sure you create an action plan that sets out how you will achieve your targets.
- Monitor the KPIs against your targets on a regular basis.
- Review and adjust your goals, KPIs and targets at regular intervals or whenever there’s an important change in the business.
- Finally, celebrate success and reward the achievement of targets and goals.
Whatever industry you’re in, whether you’re a huge company or small smart-up, setting SMART objectives, designing effective KPIs and setting clear targets will help you stay focused, and keep your business heading in the right direction.
Where to go from here
If you would like to know more about KPIs and performance measurement, check out my articles on:
Or browse the KPI Library to find the metrics that matter most to you.