©Nuthawut Somsuk/iStock/Getty Images Plus
Key Performance Indicators (KPIs) are present at nearly every level of the leading U.S. corporations—from their HR departments, to finance, to marketing, to sales. On paper, KPIs serve a very useful function: they quantify performance over a period of time, giving teams targets to hit, establishing milestones in a company’s journey toward its goals, and providing leaders with insights that can steer the ship toward greater efficiency and profitability.
However, in the age of advanced analytics, where organizations rush to incorporate the latest in analytics into aging infrastructures, companies keep building up their list of KPIs while losing sight of the big picture. Ironically, many companies that try to incorporate more data just end up with more reports that aren’t used and the data itself becomes less useful. Imagine someone intending to knit a sweater but instead starts tunnel visioning on making more and more loops, without connecting them back to the already-woven fabric. The loops become an end in themselves. This is what organizations are doing by over-indexing on KPIs—making the means the focus, not the end. Companies need to think beyond the “loops” to connect with the fabric of the bigger picture.
While there isn’t a magic number of KPIs that is correct for everyone, each company does need a well-organized set of metrics. Without a bold strategic vision that prompts action—one step in a larger culture shift toward decision making—KPIs quickly lose their standalone value. KPI measurements must be cohesive, each one building off the next link in a cascading chain to guide the organization forward. Companies are often enticed by the emergence of new data sources and lower data collection costs, misleading them into creating a glut of data. This unnecessary data, or data not tied to a specific purpose, takes time and resources to sift through, eating into the added value that these systems initially promised.
Once you have identified the right set of KPIs, incorporating them is a delicate balancing act. Let’s say a company has a set of 30 very compact KPIs, not too many, not too few, and they’re reasonably interlinked. Even if a vast majority of these KPIs are accurate and relevant, getting a few key elements wrong can poison the entire data chain. The tower can fall if one of the foundational bricks is displaced, resulting in disconnected KPIs across different parts of the organization, data residing in silos, inconsistent definitions and methodologies and limited documentation on data sources.
What are some of the key elements that organizations must get right? First off, the entire organization must not only be engaged but need to buy in to the incorporation of KPIs. Even if the organization has faith in the KPIs, they shouldn’t become overly ambitious, blinded by the allure of having technology that can capture all these measures. Companies often make this mistake, setting off on a multi-year data collection journey without realizing how large and stifling this commitment can be. Other pitfalls to avoid are not moving in modular ways, not having interim solutions, and not setting early milestones.
To avoid these pitfalls and ensure KPIs across the organization are connected and appropriate, leaders need to explore some different facets of their best uses as related to the company’s strategic priorities. Setting up a cascading framework—that is, linking top-level KPIs that reflect leadership priorities with additional strategic operational KPIs at all levels of reporting—is crucial to helping with prioritization and alignment. A transformation program should also be established and include managing initiatives through a standard dashboard, operationalizing reporting across business units, and driving a culture of continuous improvement and data-driven decision making. This also means accepting that software is not the only solution: resources must be dedicated to standardizing and visualizing reports with the end user in mind.
By focusing on measuring more meaningful and actionable metrics, companies can unlock the potential of KPIs—streamlining and revolutionizing their organizations. Becoming more aware of how KPIs are rolled out across the organization allows companies to bring into better focus whether they’re being consistently applied across all the facets of an organization. Above all else, companies must realize that metrics point to underlying problems and decisive actions are needed to remedy these problems. KPIs don’t affect the change, they’re merely a symptom that points back to the root cause of the ailment.
Vinod Prashad is a Managing Director and John Rodgers is COO and Managing Partner at SSA & Company.