Measuring Key Performance Indicators (KPIs)

Innovation
Managers should concentrate on three aspects, namely inputs, outputs, and processes. In
terms of inputs, the questions on assessment metrics should be: i) The number of new ideas that
can be pumped into the (innovation) program; ii) number of ongoing innovation workshops and
employees taking part in the workshops; and iii) number of customer reviews posted and mined
for fresh ideas.
Outputs. Assessment metrics include: i) ROI (return on investment); ii) new streams of
revenue; iii) launches of new products; iv) SVA (shareholder value added); and v) applications
for patents. These metrics are directly and indirectly related to an innovation programs outcome.
For instance, applications for patents have a direct relationship to an innovation programs
outcome.
Processes. The Six Sigma method is applicable to innovation processes in a banking
institution minus limiting the what and the how of creativity. Six Sigmas DMAIC (define,
measure, analyze, improve, control) is a quality strategy that relies on data to enhance processes.
Customer loyalty
Customer loyalty is considered to be a significant element of institutional growth and
value. There are 3 elements that signify customer loyalty: retention, advocacy, and purchasing.
The three elements are the ways in which customer loyalty influences institutional value.
Retention is measured in years, whereas advocacy is assessed via referrals and purchasing is
assessed via increased purchases. Metrics that banks can utilize include: i) churn rates; ii)
number of new customers; and iii) rates of renewal of service contracts.
Market penetration
As a metric, it concerns the number of prospective customers who have applied for a
banks product(s) instead of the banks competitors product. This form of market penetration is
often illustrated as a percentage, determined by multiplying the existing volume of sales by 100
then dividing that number by the aggregate sales volume off all comparable products, including
those that competitors offer. The market penetration metric can be used by banks to find out the
success of their marketing methods and give insight as regards how the banks products are
received in comparison to competing products.
Productivity/Employee loyalty
Establishing whether employees are contented and dedicated to working for a bank is
crucial in improving productivity and decreasing employee turnover. Employee loyalty
influences customer loyalty. Use of the following metrics helps bank managers gain insight on

employees: i) suggestion boxes; ii) online comments if the bank has an intranet, managers can
organize employee forums where aspects of the bank can be discussed; iii) questionnaires; iv)
employee committees; and v) Q&A sessions.
Capital adequacy
The capital adequacy ratio is the most frequently used measure of a banks capital
sufficiency. The ratio denotes the banks risk-weighted credit exposure. It measures two kinds of
capital, i.e. Tier 1 capital and Tier 2 capital. Banks capital adequacy is strictly regulated
worldwide to protect depositors and warrant the financial systems stability.
Loan loss
Banks must account for defaults and expenses on loans that result from lending,
considering that lenders (banks) generate revenue from the expenses and interest received from
loans given. As metrics, provisions for loan loss are continuously made to update estimations
based on customer default history. This metric influences a banks financial position by
ascertaining the banks accurate evaluation of its position.
Security
A banks information system can be assessed based on 3 elements that signify a robust
bank information security system: prevention, detection, and response. Prevention can be
assessed by metrics like authentication program strength and integrity of system architecture.
Detection metrics include information analysis in case the system has been compromised,
whereas effectiveness of the banks incident response program is a response metric.