KPIs done right – how top companies measure what matters

Introduction

Key Performance Indicators (KPIs) have become the backbone of modern performance management, but their real-world impact varies dramatically. Working with manufacturers and logistics providers, both the power and pitfalls of KPIs have become very clear. When done right, KPIs align teams, drive improvement, and enable much better decision-making. When done poorly, they become bureaucratic exercises or, worse, sources of confusion and frustration.

Still, many businesses struggle to get value from their KPIs. Some track too many, others too few, and many focus on metrics that don’t drive real decisions or results. In some cases, KPIs become political tools, manipulated to make departments look better rather than to improve performance. Data quality can also be a challenge – when numbers are hard to collect, unclear, or open to interpretation, confidence in the system quickly erodes.

Experience with industry leaders such as Procter & Gamble, Mondelez, Amazon, and successful SMEs shows that the best results come from a simple, disciplined approach: choosing a handful of clear KPIs that align with business goals, supported by operational indicators for daily management. This article explains, in straightforward steps, how to set up KPIs that work – helping you avoid common mistakes and build a system that’s practical, flexible, and delivers real results.

The Purpose of KPIs

Effective KPIs do more than measure – they drive action and improvement. Used well, they enable organizations to:

• Spot opportunities for improvement:Detect process bottlenecks or emerging issues before they escalate.
• Gauge progress toward goals:Assess advancement against objectives, recognizing successes and making timely adjustments.
• Support informed decision-making:Replace assumptions with solid data to optimize resources and guide strategy.
• Enhance accountability:Set clear expectations and track results at both individual and team levels, fostering a culture of ownership.

KPIs should not only assess past performance but also help organizations look forward and drive improvement¹.

KPIs vs. OKRs: Know the difference

KPIs (Key Performance Indicators) and OKRs (Objectives and Key Results) are often mentioned together, but serve different purposes. KPIs are measurable values used to track how well an organization is performing against its key goals – they are about monitoring and optimizing performance. OKRs, on the other hand, are a goal-setting framework that combines ambitious objectives with specific, measurable results to drive alignment and continuous improvement. While KPIs help you understand if you’re on track, OKRs set the direction and define what success looks like for a given period. Both are valuable, but they should not be mixed up: use KPIs to measure performance, and OKRs to set and communicate strategic goals ².

Why KPI overload is so common

It’s surprisingly easy for organizations to end up tracking dozens – or even hundreds – of KPIs.
Why? Each department wants its priorities represented, leaders are naturally cautious and add “just in case” metrics, and there’s a widespread reluctance to remove existing measures for fear of missing something important.

In a recent engagement, a UK manufacturer of specialty machining parts was tracking more than 30 KPIs for their headquarters operations unit. Reporting became a burden, and teams lost sight of what really drove performance. This is not unusual – many supply chain and logistics firms fall into the same trap, often out of a desire to be thorough or to satisfy multiple stakeholders³ ⁴.

When too many metrics compete for attention, important signals get lost in the noise, and KPIs risk becoming static scorecards rather than dynamic tools for improvement. As HBR notes, this overload not only confuses teams but can also lead to missing what truly matters³ ⁵. We’ll return to how to tackle this – especially how to periodically review and prune your KPI set – later in the roadmap.

The key lesson: less is more. Focus on the “vital few” metrics that truly reflect strategic goals and outcomes. Supporting metrics have their place, but should not overwhelm your core KPIs ³.

What Top Companies Do Differently

Align KPIs with strategy and stakeholders

Leading organizations ensure every KPI is tightly linked to strategic objectives and the realities of the business environment. This means:

• Involving key stakeholders – leadership, frontline managers, and where relevant, customers – in defining what “success” means.
• Using industry-specific benchmarks to set targets that are both ambitious and realistic. For example, a German automotive supplier benchmarks OEE (Overall Equipment Effectiveness) against sector leaders, not just internal history.
• Regularly revisiting KPIs as strategy evolves, rather than treating them as static scorecards³.

Communication and Change Management

Even the best KPIs fail if people don’t understand or trust them. Experts emphasize that KPI systems are as much about culture as they are about measurement. Build buy-in by:

• Clearly communicating the “why” behind each KPI and how it links to the organization’s goals.
• Training teams not just on what to measure, but how to interpret results and respond.
• Sharing early wins and lessons learned, and encouraging open feedback on what is / isn’t working.

 Data Quality and Governance form the foundation

Data quality is the Achilles’ heel of many KPI systems. To avoid disputes and ensure trust:

• Assign clear data ownership – every KPI should have a named data steward⁶.
• Standardize definitions and document calculation methods.
• Establish a process for resolving discrepancies or challenges to data integrity.
• Regularly audit data sources for accuracy and timeliness⁷.

 The three layers structure: Strategic KPIs, Hygiene KPIs, and OPIs.

To build a robust performance management system, some top companies organize their metrics into three layers, which can help to think about the different components in the right way:

1. Strategic KPIs: The “vital few” metrics that directly reflect progress toward strategic objectives and outcomes.    
2. Hygiene KPIs: Essential metrics for business continuity, compliance, or risk management – such as health & safety, environmental, or legal compliance. These don’t usually drive strategy but are non-negotiable for stable operations.
3. Operational Performance Indicators (OPIs): Team- or process-level indicators tailored by department, supporting the main KPIs and enabling local ownership and continuous improvement.

Leading vs. Lagging KPIs: Get the Balance Right

A robust KPI system combines both leading and lagging indicators:

• Leading KPIsare forward-looking and help predict future performance (e.g., number of preventive maintenance checks completed).
• Lagging KPIsmeasure outcomes after the fact (e.g., actual downtime hours per month).

For example, tracking the percentage of on-time supplier deliveries (leading) alongside customer complaint rates (lagging) gives a far more actionable view than focusing on either alone⁶.

Beware the Measurement Trap: vanity metrics and over-optimization

Not all metrics are created equal. “Vanity metrics” – numbers that look good but don’t drive real improvement – are a common pitfall⁸. Shine-bias, or the tendency to focus on flattering numbers, can distract from what matters. Even worse, when KPIs are tied too closely to incentives, teams may “game” the numbers or focus narrowly on targets at the expense of broader goals. Over-optimizing on a KPI can distort behavior, as described by Goodhart’s Law: “When a measure becomes a target, it ceases to be a good measure”.

To avoid this:

• Challenge every KPI: Does it genuinely inform decisions or drive improvement⁴?
• Mix quantitative and qualitative feedback, and periodically review for unintended side effects.
• Use the S.M.A.R.T. principle for targets – specific, measurable, assignable, realistic, and time-related – without being overly rigid⁴.

A Practical Roadmap for Building Your KPI System

1. Form a small working group: Involve a few knowledgeable people from different functions. Keep the group small to avoid turning the exercise into a contest for departmental visibility.
2. Involve stakeholders early:Facilitate workshops or interviews to define what “success” means for different groups.
3. Start from your company’s strategy: If the strategy is not yet clearly defined, clarify the main business objectives before proceeding. It is crucial that KPIs are anchored in current business challenges and market realities³.
4. Identify key drivers: Discuss and agree on the processes or factors that have the biggest impact on those strategic goals. Use practical questions to guide the discussion:

• • • What are the main levers that, if improved, would have the biggest impact on our goals?
    • What do our customers or regulators care about most?
    • Where have we seen problems or missed targets in the past year?
    • Are there “pain points” in our process that we can now measure and manage?

5. Select your KPIs: Choose a small number of metrics that directly measure progress towards your priorities, focusing on those drivers.
6. Add essential hygiene KPIs: Identify and include any must-have metrics for business continuity, compliance, or risk management (e.g., HSE, environmental, legal compliance).
7. Set clear targets: Define measurable goals and thresholds for each KPI, ideally following the S.M.A.R.T. principle – specific, measurable, assignable, realistic, and time-related.
8. Assign ownership: Each KPI should have a separate, named owner responsible for its performance. The overall KPI process can have a coordinator, but not a single results owner⁶.
9. Instruct teams to define OPIs: Ask each department or team to identify their own OPIs that support the main KPIs, using a similar roadmap and checklist.
10. Balance leading and lagging indicators:Ensure you’re tracking both drivers and outcomes⁶.
11. Automate data collection where justified and possible: Use automated feeds or simple tools (like Excel macros) to reduce manual effort, but do not let ease of measurement dictate your choices.
12. Assess data quality: Choose KPIs with reliable and timely data, even if it means adjusting the metric slightly. Check with people on the floor to understand what data is already being collected and align with that if justified.
13. Pilot and review: After three reporting cycles, assess the actual time required by teams to generate the data. Adjust staffing, budget, or automation as needed, and consider tweaking KPIs to make measurement easier if it does not compromise their value.
14. Make KPIs visible and actionable: Use dashboards and regular reviews to keep KPIs in focus and drive improvement. However, don’t let technical challenges delay starting your KPI work – simple spreadsheets or manual reports are better than waiting for perfect automation.
15. Embed in routines: Integrate KPI review into regular meetings and decision-making processes.
16. Review and refresh: KPIs are not holy or static. Reassess KPIs and OPIs every 6–12 months to keep them relevant and aligned with evolving priorities.

Make KPI reviews a real challenge, not a rubber stamp. During each periodic review, rigorously challenge every KPI. Is it still aligned with strategy? Has its original purpose been fulfilled or become less relevant? Encourage teams to justify the continued inclusion of each KPI, not just by habit but by demonstrating its ongoing value for decision-making or improvement. Pruning your KPIs is not a loss – it’s a sign of a mature, dynamic performance system that evolves with your business³ ⁴.

Case examples

• A medium sized UK manufacturer of specialty machining parts reduced its KPI set from 33 to 8 after a cross-departmental review, following a KPI training session for all managers. The result: estimated reporting time dropped by half, and teams reported greater clarity on what truly drove operational results.
• A Dutch 4PL company piloted a new KPI framework in its Rotterdam warehouse, focusing on just four leading and two lagging indicators. Within six months, on-time delivery improved by 12% and employee engagement scores rose, as teams felt more ownership over the process.
• A Paris-area chemical manufacturer formed a KPI governance team to standardize definitions and resolve inconsistencies. This simple move reduced reporting disputes and increased confidence in the numbers across departments.

Tips for KPI Success

1. Keep your KPI system simple and focused – avoid unnecessary complexity.
2. Communicate the “why” behind each KPI to build buy-in and understanding.
3. Ensure every KPI is actionable and directly linked to decision-making.
4. Use dashboards and visual tools to keep KPIs front-of-mind, but don’t let technology delays stall progress. In the end, a simple table is enough to report the numbers, and get the first important benefit: driving better data-based decisions.
5. Regularly celebrate early wins and share lessons learned to sustain momentum and engagement.
6. Stay flexible – be willing to refine or drop KPIs as business needs evolve.

Common Pitfalls to Avoid

1. Result-bias:Focusing only on end results without measuring underlying causes.
2. Shine-bias (Vanity Metrics):Highlighting only areas of strength or reporting numbers that look good on the surface but don’t drive real improvement.
3. Convenience-bias:Choosing KPIs based on ease of data collection rather than strategic importance – start with strategy, not ease of measurement.
4. Stagnation-bias:Treating KPIs as permanent and unchanging.
5. Copy-paste pitfall:Using reference KPI lists without discussion or adaptation.
6. Data-massage trap:Allowing KPI definitions or calculations to be ambiguous or manipulated, undermining trust and masking real issues.

When KPI definitions are unclear or open to interpretation, numbers can be “massaged” or manipulated – often by middle management – to make results look better than they are. This undermines trust and can hide real problems. Every KPI should have a clear, unambiguous definition, with calculation methods agreed and transparent. For example, inventory levels should be calculated consistently, without creative exclusions or shifting horizons to mask regressions or exaggerate improvements.

Conclusion: Clarity, Focus, and Continuous Improvement

KPIs are powerful – but only when they focus on what truly matters and are embedded in a culture of learning and adaptation. The most successful organizations concentrate on a small number of outcome-driven KPIs, supported by operational indicators that provide context without causing overload. Regular review, open communication, and a willingness to challenge and prune metrics are essential for keeping your KPI system relevant and impactful.

It can be helpful to get started in a pilot area, gather feedback, and refine your approach before rolling out more broadly. By anchoring KPIs in strategy, involving stakeholders, and treating your system as a living tool, you’ll set your organization up for sustained improvements in decision making.

References

1. Marr, B. (2021). “KPIs Aren’t Just About Assessing Past Performance.” Harvard Business Review. https://hbr.org/2021/09/kpis-arent-just-about-assessing-past-performance
2. Smith, B. (2020). “Create KPIs That Reflect Your Strategic Priorities.” Harvard Business Review. https://hbr.org/2020/02/create-kpis-that-reflect-your-strategic-priorities
3. Harris, M. & Tayler, B. (2020). “What Are Your KPIs Really Measuring?” Harvard Business Review. https://hbr.org/2020/09/what-are-your-kpis-really-measuring
4. Harris, M. & Tayler, B. (2012). “The True Measures of Success.” Harvard Business Review. 
   https://hbr.org/2012/10/the-true-measures-of-success
5. McKinsey & Company. (2021). “Made to measure: Getting design leadership metrics right.” https://www.mckinsey.com/capabilities/mckinsey-digital/our-insights/made-to-measure-getting-design-leadership-metrics-right
6. McKinsey & Company. (2024). “Performance management that puts people first.” https://www.mckinsey.com/capabilities/people-and-organizational-performance/our-insights/in-the-spotlight-performance-management-that-puts-people-first
7. Boston Consulting Group. (2022). “Turning a Cybersecurity Strategy into Reality.” https://www.bcg.com/publications/2022/cybersecurity-performance-management-framework
8. Barr, S. (2022). “Are You Confusing Vanity Metrics For Performance Metrics?” staceybarr.com. https://www.staceybarr.com/measure-up/are-you-confusing-vanity-metrics-for-performance-metrics/