Are Qualitative or Quantitative KPIs Better Measures of Performance?

How well is your organization meeting goals and achieving success? CEOs worldwide are searching for the most accurate indicators and predictors of past and future success. These KPIs (key performance indicators) vary from one company to the next due to differences in business sectors, goals, and objectives. While you can examine mountains of financial, marketing, sales, supply chain, and social media data, the numbers usually cannot tell you the complete story.

In the 1990s, Sears, Roebuck and Company, led by CEO Arthur Martinez, redesigned the way the company did business based on the belief that these quantitative measures do not dictate the success or failure of a company. Martinez and his board structured their operations around the employee-customer-profit chain. At the heart of this structure is employee satisfaction, leading to increased customer satisfaction and greater company profits. Sears tossed aside quantitative metrics about profit margins, sales, and their supply chain to focus on qualitative metrics like customer and employee satisfaction, believing that if employees were happy, the other metrics would follow.

Qualitative vs. Quantitative

It is natural for business owners to be drawn to quantitative KPIs when evaluating business practices and making decisions. Quantitative indicators are measurable values that indicate whether or not an organization is achieving its goals and mission. Finance managers can harvest, analyze, and present these numbers in a variety of visuals, including charts, graphs, and spreadsheets. Are you meeting this quarter’s sales goals? What is your employee turnover rate? Is your SEO campaign working? The answers to these questions are readily available through data and statistics collection.

Conversely, qualitative KPIs are indicators of opinions, attitudes, or characteristics. While not numbers themselves, they are often converted into numbers for the sake of analysis. For example, customer satisfaction may be expressed as a percentage of customers interviewed that were pleased with the service they received. These metrics are only indirectly measurable when you assign them a value. However, they provide invaluable information about patterns in business operations. A well-rounded business plan requires attention to qualitative outcomes.

Determining Your KPIs

With advances in technology, access to data is easier now than ever before. Choosing to track numbers and metrics with little or no correlation to your organization’s goals could leave you drowning in numbers and starving for information. Identifying the KPIs that are most useful within your organization is vital.

Define Your Goals: What do you hope to achieve in the next year? What areas do you need to improve upon? Be specific. Avoid ambiguous statements, as it is challenging to measure successful progression towards a vague destination.

Set Your Measures: The most effective way to measure your progress towards your goal may not be immediately apparent, especially for qualitative goals. If you want to track your progress towards increasing employee engagement, you must determine what the measurable result of achieving that goal will be. What will happen when your employees are more engaged? Is it a measurable change? Your answer will be your new KPI.

Balance Your Scorecard: Regardless of the business sector in which you operate or the size of your organization, it is essential to track one or two key metrics in each of four categories to ensure success. Losing touch with your employees, finances, business practices, or customers could lead to heavy losses. At the same time, don’t overwhelm yourself with data. Choose wisely to monitor the information that is most indicative of your alignment with the direction your company is moving.

CEOs and KPIs

Like any business, CEOs operate within a set of KPIs. The board of directors expects that if the CEO is doing their job to the best of their ability, their success will be evident in crucial areas. When they evaluate an executive’s performance, they compare the financial, strategic, and operating goals to current achievements. A CEO’s ability to achieve these goals often influences changes to their compensation package.

While these quantitative measures are a vital part of overall business success, they provide an incomplete picture of the CEO’s performance and leadership abilities. Qualitative performance indicators fill in the rest of the picture and can be more reliable sources of information in some cases. When hiring new executives, executive recruiters should consider each candidate’s abilities to meet the specific KPIs of the organization to ensure successful job placement.

Experience has shown that numbers can be manipulated. Given a set of data, you can often cherry-pick the numbers to say what you want the information to support. Furthermore, given knowledge of the goals to be achieved, employees can change their behavior to generate the desired numbers. These skewed results are not a good indicator of sustainable progress, which is why some companies advocate for heavier reliance on qualitative KPIs.

Meeting qualitative performance indicators is often indicative of positive progress towards meeting related quantitative measures. These KPIs are more challenging to influence artificially and usually reflect positive interactions with stakeholders such as customers and employees. However, it may take time to see these results as qualitative metrics are indicators of opinions and perceptions, which require time to change.

Focusing entirely on quantitative KPIs to determine when and how your organization will reach its destination at the end of the tracks ignores a host of qualitative data with the ability to derail you at any moment. Both types of performance indicators are necessary to provide the complete picture and make course corrections along the way. The key to using KPIs wisely is determining which ones are vital to monitor your progress on the path to success.

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