The Anatomy of Effective KPIs
Let’s take measuring the digital future seriously. In a big data, machine learning, and customer-centric era filled with dynamic disruption, are an organization’s legacy key performance indicators (KPIs) good enough to manage change? Do serious investors anywhere believe that Amazon, Facebook, Alibaba, Netflix, Apple, or Tencent rely on “ordinary” or “typical” KPIs to shape their customer futures and future customers?
The questions answer themselves. Leading tomorrow’s enterprise with yesterday’s KPIs is akin to using a compass for guidance instead of a GPS — yes, it can be done, but why disadvantage yourself that way? KPIs can and should be a critical leadership tool and technology. Our 2018 strategic measurement global executive study strongly suggests that KPIs — as most executives have known them — are becoming analog anachronisms. The smartest, most sophisticated, and successful organizations we surveyed are actively rethinking the role and purpose of their KPIs. CEOs intent on profitably maximizing KPI influence and impact should pay heed.
Aspiration, Accountability, and Alignment
Redesigning KPIs for digital effectiveness requires advancing the organization’s aspirations, accountability, and alignment. These metrics were basic to the original formulations of Drs. Robert Kaplan and David Norton’s balanced scorecard and Intel’s adoption of OKRs. But more data, better analytics, and keener competition require new tools for the situational awareness that enables ongoing improvement.
Our report is filled with anecdotes and vignettes illustrating how leaders with aspirational KPIs focus the organization’s strategic intent on its key processes and customers. CMO after CMO told us that KPIs measuring customer satisfaction and/or customer loyalty aren’t good enough anymore. They want KPIs that assess their customers and clients as influencers and evangelists for the enterprise. Companies as diverse as GE Healthcare, Adidas, and Airbnb increasingly look to go well beyond sales-funnel conversions to turn customers into brand advocates.
While aspiration embeds strategy and purpose, accountability defines managerial and leadership obligation and responsibility. As digital platforms cut across silos and cross-functional collaboration predominates, KPIs become essential mechanisms for creating accountability. C-suite executives stressed how innovative KPIs facilitate accountability across functions and teams, which often addresses an organization’s most sensitive and volatile issues.
For example, Airbnb swiftly responded to public accusations of racial discrimination in its lodging offers by using a shared KPI to redefine accountability and collaboration across the organization. Former CMO Jonathan Mildenhall recalls:
We had a huge challenge when there was a narrative about discrimination on the platform, and we worked as a cross-functional team. It was the priority in 2016 to clear that up. We worked incredibly hard, and we met all of our goals so that, as a company, we felt that it was appropriate that we could go out with a Super Bowl spot which was about diversity and inclusion and the values that the Airbnb community holds dear. Now, that spot couldn’t have come about without product, public policy, marketing, and operations all feeling very, very confident that the truth within that message was reflected in the product and out there in the marketplace.
As Mildenhall shared, articulating strategic priorities wasn’t enough to promote change. The company’s new KPI, however, could demonstrate how fairly and how well the company’s platform quantitatively addressed diversity and inclusion challenges in its most challenging geographies. He explicitly describes how this KPI drove alignment as well as accountability. For Airbnb and other leading organizations, shared KPIs are essential metrics and mechanisms for creating both accountability and alignment around the business’s most important concerns. They push top management to collaborate, too.
This marriage of accountability and alignment encourages greater awareness, accessibility, and agility. These represent the next three most important KPI implementation insights for executives. Accelerated internal communication platforms like Yammer, Chatter, and Slack mean that KPIs can be swiftly and comprehensively shared. More people can become more aware of how they affect KPIs and how KPIs affect them. Increasingly, leaders and managers alike have to decide how accessible they should make their KPIs.
At Experian, a strategic initiative to move beyond its credit-reporting base to a richer array of personal financial services led to a host of new metrics. Management measured not just accountability and alignment but the agility with which its people responded to innovation opportunities and customer demand for these new services.
Anticipation, Automation, and Affect
KPIs enabling anticipation and automation are the next metrics requiring thoughtful executive oversight. When KPIs are married to machine learning to make them more predictive, they shift from legacy to next-generation measures. That is, KPIs need to become smarter and more aware of what might come next. To coin a phrase: “greater productivity through better predictivity.”
Machine learning and AI algorithms should make KPIs more anticipatory. KPIs will not just tell you what’s happened and what’s happening now — they’ll compute, display, and suggest what’s next. They need to become more prospective rather than merely retrospective. KPIs, not just the people who use them, will learn to anticipate.
We were told that smarter and more anticipatory KPIs lend themselves to automation. “We’re very excited about the ability to automate decisioning against our key objectives and KPIs,” says GoDaddy chief revenue officer Andrew Low Ah Kee. “I think that’s actually even more compelling than allocating an individual resource or dollars or people, because that inherently is a crude allocation of resources. We’re very excited about the prospect of using the large data sets that we have.”
There is a final “A” leaders should consider: affective. Serious leaders strive to create emotional connections between their people and their KPIs, not mindless compliance. KPIs should motivate, inspire, and provoke new thinking and ideas around opportunity and growth. Organizations must understand what is “key” both in the moment and in the future, and the most successful leaders — without exception — champion KPIs built on aspiration, accountability, alignment, awareness, accessibility, and agility with an eye toward anticipation and automation. KPIs that are both effective and affective are the next-generation measures that will drive organizations forward.