Metrics, KPIs and CSFs – in Business and in Life

What is a Metric?


Here I am referring to the first definition i.e. a system or standard of measurement, and not the Metric system.

Metrics are for measurement. Business Metrics are for measuring Business parameters. Key Performance Indicators (KPIs) are for measuring performance. Critical Success Factors (CSFs) are for measuring the outcome (of an initiative or a project or a decision). Different names – but ultimately they all are Metrics – a system of measurement.

And why do you measure? You want to manage, and improve things. As Peter Drucker put it: If you can’t measure it, you can’t improve it” and “What gets measured gets managed”


Metrics should not be confused with Data or Information.

You can’t pick your data, but you must pick your metrics.

Slightly deviating from Metrics, do read about DIKW Pyramid. I’ll write a separate article on DIKW (borrowing from my MBA dissertation). But for now, keep in mind that Data is NOT Information. Information is NOT Knowledge. And Knowledge is NOT Wisdom. So don’t use these terms loosely, and interchangeably.

Coming back to Metrics – Metrics is not same as Data or Information (or even Knowledge/Wisdom). I’ll  talk about this common habit of mistaking a Metric for an Insight later. Let’s look at some reasons to measure:


Metrics are a special form of Statistics. Statistical study is the practice or science of collecting and analysing numerical data in large quantities, especially for the purpose of inferring proportions in a whole from those in a representative sample. While the purpose of statistics is “to infer”, the purpose of Metrics is more specific – “to infer in order to manage”. Anything that gets measured is easier to manage – simply because you can understand it better.


Focus on Metrics has been the backbone of statistical analysis, process improvement, Quality initiatives and Six Sigma methodology of DMAIC [ Define –> Measure –> Analyze –> Improve –> Control]

DMAIC methodology tells us something important in the journey of transformation. D comes ahead of M. You have to “define” what you want to achieve and hence what you want to “measure”. This is the foundation of Performance Management or philosophy of Management by Objectives (MBOs).

By setting right performance metrics AND right incentives, benefit/reward system you can INDUCE favorable behavior and manage performance.

You will realize how crucial this thought is once you look around and see its application. “Carrot and Stick Approach” is the crudest form of this principle. You incentisize by showing a carrot or bring in discipline by using a stick. However, understand that carror or sticks are NOT Metrics. They are rewards or penalties. Not the metrics.

Metrics are not outcomes. However, good metrics should “influence” outcome.

Let’s build on this thought. You want a child old teenager to “behave”. You use carrot and stick approach. You reward the boy with a candy if he behaves well. You punish him with stick if he misbehaves. Neither candy nor stick are metrics. Also, the “good behavior” is not a metric. But the measure by which you’ll determine whether the behavior is “good” is a metric.

Why is this understanding important? Suppose you tell the child that he should “behave well” to get a candy, otherwise he would be beaten up. The child would ask “What do you mean by “behave well”? In other words, the child is saying “Define the metrics that would determine if he behaved well or not”.

Now if the metric is set as the following:

  1. If the child studies for 4 hours a day, completes home-work, doesn’t watch TV, sleeps before 9 PM and gets up at 6 AM – without fail for 1 year – that’s good behavior and would get reward
  2. If the child fails at any of these even for a SINGLE DAY – that’s bad behavior and would get punishment


You can see that the metric is “designed to fail”. The success criteria is so difficult that the child would think that no matter how hard he tries he is not going to achieve. You are bound to miss those targets some time during one long year. So by setting such steep metric you cannot bring any behavior change in the child.


Well, almost yes, but not entirely…

What we are not considering here is Metrics and Reward/Punishment relation.

Let’s say for the same Metric the reward is not a candy but a brand new Xbox or Playstation console! Now the target is worth giving a try. Or let’s take the other extreme scenario (and this is really really extreme, meant only as an example). For the same Metric the punishment is that the boy would be beaten up to death. Now the target looks really achievable.

So the key point is – setting a right metric AND setting right reward/penalty system will likely lead to change in behavior and improvement.

Following picture summarizes the “Metrics –> Behavior –> Outcomes” link.


I will continue this in next blog posts and talk about why Metrics fail.


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