How many times has someone used a business term that you don’t really understand? Everyone else is nodding sensibly, so you think it’s best to nod sensibly, too, rather than asking, “Excuse me, what the hell is a KPI?”
I’ll explain what KPIs really are and how they work so you can discuss them intelligently and make informed decisions.
let’s start with the acronym
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KPI means “key performance indicator”. There are many origin stories. The most popular dealt with public sector management.
In Britain in the 1980s, Margaret Thatcher’s Conservative Party was trying to find ways to run the government more like a business, and they were challenged to measure the performance of organizations that didn’t make money, and didn’t plan to make money . So they started using KPIs to do the job.
KPIs usually focus on what’s happening in the process. Businesses realize they can use them too. Information technology can be used to crunch the numbers. This is the perfect breeding ground for KPIs.
basic concept
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KPIs (or “indicators”) measure something numerically. Sometimes organizations try to justify funding requests by “measuring” the unmeasurable. An organization can quantify “engagement” by counting the number of meetings they have with their target audience, how many people attend meetings, etc. While this measures “activity”, does it necessarily measure “engagement”? How many people pay attention during the meeting? What will happen in these meetings?
When someone gives you a KPI, ask how it was calculated or what it’s supposed to represent.
Lagging and leading indicators
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Lagging indicators are used to measure what has already happened, while leading indicators are used to predict what will happen. A lagging indicator that measures what has happened is often used as a leading indicator to extrapolate what is about to happen.
Average Handling Time (AHT) is a good example. It measures the average length of time contact center agents spend with each customer, including call time, hold time and after-call work. It is based on completed calls, so it can rightly be considered a lagging indicator.
AHT is also used to infer how many calls an agent will handle in the future. AHT is an integral part of forecasting and planning. In this way, AHT is also a leading indicator.
When someone cites a KPI you’re not familiar with, ask if it’s a lagging or leading indicator. If they say it’s a leading indicator, ask why.
aggregated metrics
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Aggregate metrics or KPIs are those that don’t directly measure something, but are combined with a series of other metrics to arrive at an aggregate score. Performance ratings are a classic example.
Contact center agents receive quarterly performance ratings. That’s what her bonus is for. It combines her AHT, the number of calls she handled in the quarter (productivity), the hours she worked in the quarter (attendance), and her supervisor’s quality rating of a call based on a weekly assessment.
Her performance rating doesn’t just depend on the four stats shown above. It also depends on how important each statistic is thought to be by the person designing the indicator. She might have a perfect quality score on all calls assessed, but if quality is given a 10% weight and AHT has a 40% weight, then her calls taking longer than average will be ok regardless of her quality score She is not good.
The choice of indicators is also important. Her “performance” depends on AHT, productivity, attendance and quality. Contact center shifts have finite hours, so if AHT goes up, productivity will inevitably go down, so these two metrics measure more or less the same thing.
The choice of indicators affects behavior. I am an agent. If I know I’m going to lose my bonus for spending too long trying to help a client, I’ll quickly escalate him to tier 2 if I can’t fix his problem quickly.
“Every metric has its place.”
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To understand a metric, you need to know where it sits in the process you’re measuring. Traditionally, they can sit in four places.
enter: They measure what happens to influencing factors before the process begins. A contact center classic is “number of calls offered” or “correct party connection”. In human resources, they can include “agent churn.”
process: They measure what actually happens during the process. Most contact center KPIs are “process” KPIs. Classics in the contact center world include Service Level (percentage of calls answered within a specified number of seconds) or AHT.
output: This is what a process produces as a complete unit of work done. The “classic” in contact centers is “productivity”, which is the number of calls handled. Output measures should be hard numbers. If the “output” metric is a vaguely aggregated KPI like “engagement,” it’s worth asking what exactly the process produced.
result: These are designed to measure the consequences of the process. They are not always related to output. NPS scores are a typical example. High-tech contact centers may use customer sentiment scores. The resulting KPIs are more likely to be aggregated, which means they may be more susceptible to manipulation or bias. If you’re not sure what an outcome KPI means, try asking what it measures or how it relates to the process it measures.
wrap up
Done right, KPIs are an invaluable tool for understanding how processes are performing. They do need to be well considered and applied wisely. If you’re looking to overhaul your KPIs and want some ideas, why shouldn’t we? keep in touch?
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