I have, often enough, come across the terms Key Performance Areas (KPAs) and Key Performance Indicators (KPIs) used in organizational planning particularly in strategic planning by public or service organizations. However, quite often they are used incorrectly something that has prompted me to make this small contribution. So, what are KPAs and KPIs?
To understand KPIs one has to first understand KPAs, in terms of what they are and where they are found, which then paves the way to understanding KPIs. The key word in both terms is performance. Performance is a description of achievement in the market place or in relation to customers. An athlete will have put up excellent performance if they won a gold medal. The medal is symbolic but the real value is the pleasure they give the fans and spectators for running the fastest. The service provided is entertainment.
In organizational terms performance is about delivery of products or services that have economic value to beneficiaries or customers. The products or services delivered are the source of reward to employees or income to the organization. They are the reason customers or someone on behalf of customers pays for the value the products or services represent. They are the basis for money flowing to the organization. In the case of public organizations, the government funds them on the basis of the value beneficiaries attach to the organization's services or products. Unfortunately, this presumed link is in practice so blurred that it is often forgotten in public or service organizations.
Since organizations are established, essentially, to deliver value to beneficiaries or customers outside themselves, it follows that performance is not measured from within the organization but from outside. Performance must be expressed or enjoyed by the people whom the organization is intended to serve – the customers. It is they who define performance because they know what they value and are willing to pay for.
Therefore, KPAs are customer or market related areas in which results can be measured; they are outside the organization. In a sense KPAs are mini businesses within a business in which segments of organizational results or services can be found. They are the basis for strategic objectives. KPAs directly and vitally affect the survival and prosperity of an organization. Such areas are related to markets and customers. For products or services to have value there must be markets and customers. Markets or customers are the source of the organization's profits or funding of non-business organizations.
KPIs are then the indicators of performance in KPAs at particular times in the implementation span. They are numbers or proportions of results, which could include percentage market share, number of customers, student enrolment, hotel room occupancy, percentage customer satisfaction with a product or service, etc. Therefore, whenever one sees, as I have so often seen, KPAs and KPIs expressed as either activities or outputs of activities within the organization, this is incorrect. KPAs and KPIs are not inward looking reflecting internal efforts; they are outward looking reflecting products or services.