Understanding Output and Input KPIs

Output KPIs, such as revenue, profit margins, and customer satisfaction scores, provide a snapshot of an organisation's performance based on the results delivered. Whilst these metrics are undoubtedly crucial for assessing success, they often fall short in offering actionable insights into the processes that led to these outcomes.  

On the other hand, lead indicators involve the measurement of numerous factors contributing to the production of said outputs. These may include employee engagement, training initiatives, and innovation efforts. By relentlessly focusing on these inputs, organisations gain a deeper understanding of the driving forces behind their performance metrics.

The Pitfalls of Solely Relying on Output KPIs

Output Measures are Typically Too Late

Whilst Output KPIs do provide a snapshot of performance, they only tell you if you have achieved your goal based on historical performance.  For example, when looking at the safety of its employees, companies typically measure the number of accidents.  The problem with this kind of lag measure is that the accidents have already happened.  If the target is to reduce accidents, simply measuring the number of accidents alone is not enough.  

Lack of Insight into Processes

Output KPIs, whilst indicative of success or failure, do not shed light on the processes and strategies that led to those outcomes. Without fully understanding the inputs that contributed to the results, organisations risk missing valuable opportunities for improvement.  Looking at accidents once again organisations must consider the actions that lead to accidents happening, for example lack of training, incorrect Personal Protective Equipment (PPE) or cultural pressures.  

Reactive rather than Proactive Decision-Making

Relying solely on output KPIs can lead to a reactive approach to problem-solving. Organisations may find themselves addressing issues only after they have already impacted the bottom line, rather than proactively identifying, and mitigating potential challenges through the measurement of inputs.  This means that the business could be spending time and investment on poor performance which could have been avoided if the right measures were in place and the issues were identified earlier. 

The Importance of Measuring Inputs

Looking back at the weight loss example, whilst weighing myself every week will tell me what weight I am it won’t tell me why my weight changed that week, be it up or down.  The input measures of calories consumed each day, calories burned, or even steps taken will all have a factor on my weight.  Only by understanding and measuring these inputs can I consistently achieve my target, and this is why measuring these lead indicators is essential.  

Looking within the business environment, identifying and measuring lead indicators delivers a number of strategic advantages:

Early Detection of Issues

By tracking input KPIs, organisations can identify potential issues at an early stage. For example, monitoring employee engagement can provide insights into potential morale issues before they manifest as decreased productivity or increased employee turnover rates.  Likewise, accident rates can be reduced with the use of observational behaviour tools, identifying unsafe practices before any employee is injured.  

Strategic Decision-Making

Organisations cannot make effective strategic decisions without a thorough understanding of their internal processes. Input KPIs can support this, as they allow business leaders to truly understand the factors that influence performance, allowing adjustments and improvements to be implemented before issues negatively impact output KPIs.  

Continuous Improvement

Focusing on lead indicators fosters a culture of continuous improvement, which is essential in a successful business. Organisations can regularly assess and refine their processes, encouraging innovation and adaptability in the face of changing market conditions.

Employee Development and Satisfaction

Employees typically have more control and influence over their lead indicators.  Focusing on these, and recognising good performance, results in a more engaged and satisfied workforce. This, in turn, positively influences output KPIs such as productivity and customer satisfaction.  

Conclusion

To conclude, the strategic shift towards identifying and measuring lead indicators rather than solely relying on output KPIs is gaining momentum for good reason. Organisations that embrace this approach, position themselves for long-term success by fostering a culture of continuous improvement, proactively addressing challenges, and gaining valuable insights into the processes that drive their outcomes. While output KPIs remain crucial for assessing overall performance, a balanced focus on inputs is key to unlocking the full potential of an organisation's capabilities.

How can we help? 

Reinvigoration’s experts have decades of experience and specialised knowledge in performance management, ensuring that you have the right measures to get the best out of your team and your business.  We would be happy to discuss any specific challenges you may be experiencing at your organisation, please get in touch with one of our experts.