Five Categories to Focus Your KPIs

Most organizations use key performance indicators (KPIs) to monitor and track performance — that’s the norm. However, MIT Sloan Management Review’s recent research report, “Leading With Next-Generation Key Performance Indicators,” shows that maximizing the business value of KPIs requires different kinds of leadership commitment. Two distinct but related best practices powerfully influence enterprise KPI effectiveness: greater KPI transparency and clearer KPI alignment.

Greater KPI transparency means organizations make their most important metrics — marketing, sales, financial, project, process — more available company-wide. Picture, for example, dedicated Slack channels for KPI review and comment. Transparency facilitates clearer KPI alignment across the enterprise; teams can literally see what KPIs might be most relevant to their people and purpose, and respond accordingly. In interviews, brand-oriented companies as varied as Adidas, Colgate-Palmolive, and GoDaddy articulated this silo-busting KPI ethos. But we also saw organizations like GE Healthcare using KPIs to improve top-down, bottom-up vertical effectiveness. Transparency of hierarchical KPIs informs every level of the enterprise. Our research suggests sophisticated data-driven companies not only share KPIs, but also expect managers to (re)organize around them.

We found shared KPIs explicitly used to promote cross-functional collaborations. In other words, KPIs are being used to lead change as well as manage it. Analytically superior organizations use algorithms to identify and weight KPI attributions to desired marketing or customer outcomes. After reading the report, one executive in a multibillion-dollar industrial conglomerate reached out to acknowledge that the company was better at sharing customer data internally than sharing its diverse customer-engagement KPIs. In this context, KPIs aren’t just data but crucial metadata as well. They offer organizations new insights into holding themselves accountable.

The essential takeaway: The “KPI future” increasingly depends on how leaders define and drive KPI transparency and alignment in their organizations. The innovation trajectories of big data and analytics strongly suggest that tomorrow’s digital transformation challenges will likely revolve around five strategic KPI domains. Each domain is special and essential, and could either be tightly — or loosely — coupled with the others. That’s why high-impact KPI innovation will require as much leadership art as data science. Leaders need to choose, prioritize, and emphasize which metrics should matter most. They need to encourage and empower talent to redefine what kinds of performance and indicators deserve to be “key.” The most important battles around KPI creativity, productivity, and accountability will be fought here:

• Enterprise KPIs: These are the KPIs an organization chooses to highlight, prioritize, and emphasize throughout the enterprise. Whether predominantly financial, operational, or customer-focused, these core KPIs inform both strategic and day-to-day decision-making and investment. They can range from RAROC (risk-adjusted return on capital) to NPS (Net Promoter Score). They’re how leadership explicitly holds itself and the enterprise accountable.
• Customer KPIs: These metrics describe the real and potential economic value contributions of enterprise prospects, leads, and customers. What kinds of insight, influence, and impact do these assorted prospects, leads, and customers offer? In which brand segments and sales funnels do they belong? What might their customer lifetime value be? Which touch points matter most? What behaviors signal churn? What are the one-touch resolution rates? Which customers or clients are the 20% of the segment driving 80% of the outcomes? These KPIs prioritize and assess the kind of relationships that organizations want to have with their customers.
• Workplace analytics: These KPIs measure the productivity and engagement of the organization’s people, teams, and talent. They highlight which managers most effectively motivate, for example, and what kinds of deadlines and deliverables undermine morale. They identify leadership tools and techniques that improve “customer focus” and track collaboration across the enterprise. They capture and quantify the process outcomes and outputs feeding enterprise KPIs. Work Rules, Laszlo Bock’s superb overview of Google’s data-driven workplace analytics development, brilliantly captures the human capital ethos of converting “measurable insights” into KPIs.
• Partner and supplier KPIs: These KPIs assess business ecosystem effectiveness. Are suppliers delivering on time, on budget, and with appropriate quality? To what extent do channels undermine or enhance Net Promoter Scores? Are partners sharing — or enabling easy access to — the right data? Do they propose or invite actionable innovation options and opportunities? How well, or poorly, do they contribute to asset efficiency? These KPIs prioritize the kind of business relationships organizations want to have with their external value chain.
• Quantified-self KPIs: While posing ethical concerns around privacy and proprietary data, the quantified-self movement offers rich reservoirs of data to inform and improve personal productivity KPIs. Self-knowledge through numbers is a powerful concept. The increasing power and pervasiveness of digital devices assures it will become even more important inside, as well as outside, the enterprise. (Indeed, much of the bring your own device, or BYOD, movement forced corporate IT departments to embrace mobile and app-based computing.) How should salespeople be invited to share their self-tracking performance goals with colleagues? Will project managers marry moods to morale when assessing team performance? Do managers have a right to ask an associate to self-quantify for sensitive client engagements? These seeming hypotheticals around quantified-self data will inspire next-generation KPIs for tomorrow’s talent assessment and review.

The obvious — and intrinsic — KPI overlaps among these five domains shouldn’t obscure the reality that new data and innovative analytics will transform how they dynamically interact. Quantified-self improvements could inform workplace KPIs in ways that directly redefine enterprise KPIs. Conversely, as dramatically more partners and distributors embrace workplace analytic KPIs, new opportunities to refine and enhance customer KPIs will likely emerge. This would alter enterprise KPIs as well. Needless to say, the data components underlying these KPIs may also evolve dynamically. Data governance policies, programs, and practices assume greater importance when KPIs drive decision.

Consequently, these five domains shouldn’t be seen only as a “KPI stack” but rather spheres that intersect and overlap depending upon enterprise aspirations, corporate culture, and market forces. Which KPI domains drive innovation? How do KPI changes in one domain propagate KPI changes in others? Which interrelated KPIs signal margin opportunities? Which KPI ensembles signal new growth potential? These questions seem strategically unavoidable and unavoidably strategic.

What’s not clear in these scenarios is, who owns KPI transparency and KPI alignment to ensure the enterprise is maximizing value for itself and its customers? Should it be the chief revenue officer? The CFO? The CMO? The chief customer or commercial officer? To be sure, this can’t just be yet another CEO obligation. Aligning APIs — the application programming interfaces that enable data interoperability — with KPIs becomes an executive priority for leadership. API governance will be an important complement to data governance.

So, who should be held accountable for making the company accountable in this emerging KPI ecosystem? Serious data-driven leadership has just begun seriously answering this question. Our research shows these leaders already recognize that better domain transparency is useful for ensuring that appropriate KPI alignment can occur between customers and partners, between teams and partners, and between enterprise imperatives and individual talents. Empowering self-organization around KPIs is fast becoming an important leadership principle for the networked enterprise. KPIs are less the points of a compass than a GPS visualization for managers seeking to better navigate complexity.

Indeed, our survey found Measurement Leader organizations taking the digital initiative to identify and map KPI relationships and interdependencies. These companies indicated that they’re at the beginning of their journey. That said, they know and accept that the KPI’s traditional role as a mechanism to monitor and track performance is no longer good enough for sustaining success in a data-rich world. They embrace KPI transparency and alignment to measurably get better and measure getting better.