Are You Using Your KPIs Appropriately: Report Card or Predictive Data?
After reading my first article in this series about using KPIs to properly predict the growth of your business, you likely began to understand why you should be wary of a simplistic view of KPIs in reporting company performance. Moreover, you may now fully realize the distinction between performance indicators and predictive indicators, which will help you uncover critical forecasts within your company data.
As McKinsey explained in a recent article, “What gets measured, gets done.” That may be true, however, performance management begins to fail in any enterprise when executives use and act upon poor metrics, the wrong targets, or irrelevant information.
How about an illustration? Let’s take a glance at a fictitious company example: New 3Q product sales at SparrowCo are up by 21 percent – and existing products sales are performing at the same steady level as last quarter, which was up 12 percent over 1Q. Business is clearly growing, would you agree? Everyone is happy, and the sales reps are counting commission dollars. Yay! Party time!
But wait…there’s more! Let’s take a deeper look.What if I told you that the data behind the data shows that 73 percent of SparrowCo’s new customers last quarter purchased only the base version of our new software product? That group’s average sale price is 25 percent lower than what the other 27 percent of new customers paid. What’s more, the product they purchased delivers much less robust functionality.
Is there truly cause for celebration or concern? What does this mean for future sales, revenues, and customer retention? Many executives see an exciting trend in that 21 percent new product pop, assuming that it will continue for the foreseeable future. But you see the clearer forecast, right?
Wouldn’t you agree there’s a whole lot more to the story than an A+ report card?
I, for one, don’t see any reason for merriment -- at least not yet. I see an impending typhoon off the bow if SparrowCo stays the course. I’d also predict a huge opportunity to circumnavigate the globe if we take the time to understand the reasons why the two group’s buying patterns differ.
What’s this all mean? It’s really quite simple. Stop looking at your KPIs as a report card and start looking at them as predictors of what’s about to come!
Smooth Seas Don’t Make Good Sailors
I’d also recommend you stop spending time viewing your market share – and start tracking your market growth. Put on an entirely new lens, one that constantly asks, “What does this mean for the coming months/years? Is there an opportunity forming out there, or are things going to get nasty and difficult?”
The data doesn’t lie, but you need to use it to uncover the truth. As I always say, “smooth seas” do not make good sailors. If your company culture tends to look for data that indicates what you’re doing well, you need to make adjustments – and quickly. Whatever you’re measuring now is probably just the tip of the iceberg.
It’s likely fine for simple, report card-oriented KPIs, but those are all about business performance. They’re not predictions. Think about the path ahead, so the icebergs in the marketplace don’t suddenly appear out of the darkness.
I could make a big long laundry list of things for you to measure and soon, I’ll share some specific recommendations. However, your business is not my business, unless of course, you hire me as your fractional CMO. For the time being, as company CEO you are the only one who truly knows what’s mission critical.
Assess the things you’d classify as: “If we mess this up, not only will we not grow, but we’ll lose business.” That’s the stuff you need to really understand. Some of the necessary data is internal, and some will be external to your company.
The Benefits of SWOT Analyses – and a Company-Wide Commitment to Data Metrics
Maybe your organization doesn’t do a good job of measuring historical achievement, much less predictive performance. To get to the sweet spot, you’ll need to glean performance-oriented data. Remember, though, that your goal is to get way beyond that view. If you’re unclear on where to start you might consider conducting a SWOT analysis with your key leaders.
“Data Is Like Garbage. You'd Better Know What You Are Going to Do with It Before You Collect It.” – Mark Twain
Determine the data metrics that can reasonably measure how you’re doing in a given area, build the baseline, and start tracking and publishing the results, with commentary. Hold the appropriate executive or manager accountable for the outcomes and, most importantly, what he or she predicts the data is forecasting about the future.
Sometimes that hypothesis could be, “We’re not sure what this means, but we’re digging in further,” and sometimes, the meaning will be incredibly clear. It’s essential for a CEO to get his team thinking about future management controls to achieve success, particularly in moving the predictive indicator needle ever northward.
Require the data to be populated and published in a dashboard report. If you can automate the reporting of the metrics, all the better. That will cut down on spin commentary or data manipulation.
Mark Twain also once wisely counseled, “Most people use statistics like a drunk man uses a lamppost; more for support than illumination.” Don’t let that happen in your company.
If the Data Has Integrity, It Won’t Lie. Make Certain It Doesn’t.
Reviewing the dashboard regularly is crucial. I understand you’re a busy executive, and you may well trust your subordinates, but your view is unique and vital to the course your ship is sailing. Disciplined review of the information, coupled with holding your folks accountable for the predictive view derived from the metrics, is mission critical.
Remember, as the CEO, the buck stops HERE. Taking the time to dive deeper into the data will help you properly focus your growth expectations, and give the entire leadership team the appropriate motivation to turn mere KPIs into action.
In the next article in this series, we’ll talk specifically about key predictive indicators you can use to forecast your growth trajectory and achieve long-term success.