In the current age of the business world, success is in the digital details, and key performance indicators (KPIs) can make sense of those details, acting as signposts to lead you to optimizing your business. As quantifiable measures for your business’ performance, KPIs shine a light on where your business is thriving and where there is room for improvement e.g. reducing costs, boosting efficiency, and gaining an edge over your competition.
In this article, we share all you need to know about KPIs: what they are, how they function, and how you can use KPIs to reassess your organization’s structure, objectives, and digital transformation strategy.
What Are KPIs?
KPIs are specific data sets that quantify the performance of an organization, including its operations, employees, and short- and long-term objectives. KPIs are a reassuring tool that provide concrete evidence that a business is taking the necessary steps toward meeting and exceeding goals.
KPIs Are Not “One Size Fits All”
A study out of MIT has shown that KPIs are a transformational leadership tool for organizations that can optimize efficiency and outcomes for a business’ initiatives. However, since all businesses have specific needs and objectives, not all KPIs are effective for all businesses. This makes the development of KPIs that accurately measure an organization’s success an overwhelming and complicated task for many businesses. MIT’s findings show that most companies have the wrong perspective about KPIs: they “treat KPIs as reporting and accounting mechanisms rather than strategic decision drivers; they’re used more to keep score than change the game.” The question remains: how can you alter your perspective of KPIs to benefit your business?
KPIs Are a Roadmap, Not a Mirror
The common mistake companies make is developing corporate initiatives without considering KPIs, and then using them to measure the performance of those initiatives after the fact. Researchers at MIT urge businesses to reassess their approach to fully leverage the power of KPIs, urging companies to integrate them in the development of a strategic plan.
The best way to do this is to take the time to fully define the target quantifiable measures that would represent the optimal execution of an initiative. This reverses the current approach to KPIs. Companies should no longer wait to use KPIs after an initiative is complete to analyze successes and failures; this is simply holding up a mirror to your operations, with counterproductive results. Rather, companies should clearly define and communicate to their teams what key performance looks like, highlighting the necessary deliverables and resources available to reach that performance.
Here is a step-by-step process to help you incorporate KPIs into the ideation of your digital transformation strategy:
1. Specify Your Ultimate Vision
Before you develop an action plan, you must first have an end in mind. The first step is to draft a clear, concise summary of the overall vision for your initiative. Here, specificity is key: if you are looking to increase revenue, cut costs, boost client retention, etc., specify the optimal percentage increase or decrease you have in mind. This will ensure all team members are on the same page regarding what your company is striving for.
2. Set Short- and Long-Term Goals
This step will continue to narrow the focus of your vision, using KPIs to create tangible goals for your employees. These goals should include quantifiable measures that specify what exactly is to be done and who exactly will be doing it. For example, if the ultimate vision is to boost client retention, then quantifiable goals could look something like, “enhance customer experience design and increase customer satisfaction.”
3. Highlight an Action Plan to Accomplish Each Goal
This further narrows the focus and dedicates attention to all company goals, highlighting KPI targets necessary for success. To continue with the above examples, if one of the goals is to increase customer retention, a quantifiable action plan could be to increase the rate-of-response to customer queries over the next quarter.
4. Consider KPIs That Will Measure Each Action
Finally, take the time to pinpoint the metrics to measure performance along every step of the way. Continuing with the example of customer retention: if increased rates of response time is the planned action, then metrics could include customer satisfaction surveys that correspond with your rate of response to their queries. With this KPI in place, you will have concrete data that tells you whether you are on the right track to meeting your goal.
In our next article, we will highlight specific KPIs in case studies to help you gain a deeper understanding of how to develop a KPI portfolio. In the meantime, if you are looking for one of our experts to assist you in your strategic planning process, reach out to us and book a consultation today.
