Growth Insights for CEOs

Are You Using Your KPIs Appropriately: Report Card or Predictive Data?

Posted by Paul Sparrow



kpiJust a few weeks ago, I enjoyed yet another screening of the 1976 movie The Gumball Rally. If you’ve never seen it, it’s a slapstick satire about a wild and crazy cross-country race. The competition starts in New York City, with a goal to finish in the shortest amount of time. During the trek, a driver named Franco rips the review mirror off his windshield and dramatically announces the first rule of Italian driving: “What’s behind me is not important!”

Even though I’ve heard this line plenty of times, I couldn’t help but chuckle. This belief is not only applicable to the business world – but appropriate when creating and measuring your company’s Key Performance Indicators (KPIs).

According to Investopedia, a KPI is a set of measurable data that a company uses to gauge its performance over time. Examples include return on marketing investment, customer lifetime value (LTV), and customer acquisition cost (CAC). There are endless performance indicators you can use to measure your business goals.Even if your organization already uses KPIs as a progress report, you may not be getting the insights you need to grow and enter new markets. If this sounds like you, it’s helpful to work with a fractional Chief Marketing Officer, like me, to view your data in a new light.

“It’s Not What We Don’t Know That Hurts. It’s What We Know That Ain’t So.” – Will Rogers

I’ll let you in on a little secret – historical performance is not the key to growth. It’s really not. Even Investopedia’s definition of KPIs, a notion most business folks carry, is flawed in that it relies on company data as a look back— a sort of “How’s it going” and “How’d we do last quarter” measurement in order to feel good (or bad) about how we’ll likely do in the future.

Wouldn’t it be more useful if your data predicted how you were going to do – and why you would end up there? That’s the information you would really like to know— and that’s exactly what we should define as Key Predictive Indicators.

If a typhoon is forming miles out, yet square in the middle of your ship’s path, wouldn’t you want to steer away while there’s time? I’m no sailor, but I can imagine a traditionally-defined KPI sailing report includes some fundamental data points akin to:

  • We’ve logged 2,012 miles since leaving port, with only a small leak in the stern.
  • The leak was patched 12 hours ago, and no water remains.
  • We’re averaging 25.23 knots per hour, which should get us to our destination in 7 days.
  • Our weather all trip has been clear, and the seas are smooth.
  • The crew remains in high spirits.

My Chief Outsiders colleague, friend, and sailor extraordinaire Pete Hayes will undoubtedly point out that I’ve omitted a detailed weather forecast, current headings (longitude & latitude), and a whole host of other vital data – and he’d be correct. But bear with me; I’m a growth strategist, not a ship captain!

My point is this—with only historical and “in the moment” data bolted onto a fixed goal, how can anyone possibly prepare for the brewing storm? How would they even know the tempest is coming? Now, you might be thinking, “But isn’t there huge value in a performance-based historical business view?” In and of itself, no -- not so much. When it comes to navigating the choppy waters of business growth, there’s hardly any value at all.

Blasphemer!

Before dismissing me as a doofy, half-cocked, non-sailing business heretic, hear me out.

“Show me your KPIs” is a request I make of CEOs when starting a new engagement.

I recently spoke with a company owner who had no performance benchmarks and no management controls. Moreover, she was not taking any actions whatsoever to steer her business in the right direction. As she forged on blindly, carrying out day-to-day operations, she remained confused as to why her business enrollments were trending down. She also had no idea of what her client list would look like in 3-6 months.

I explained to her that it was critical to understand the pressure points of her business. Using benchmark historical data is surely fundamental, and she needed it. However, in and of itself, this information is not distinctly valuable for predicting the future. Even WITH the appropriate standards in place, most companies get it wrong.

In almost every situation, the KPIs I encounter are a summary of whether or not the company achieved revenue goals or made their sales numbers. While this information is useful, your performance criteria are not limited to the sales and revenue side of the business. Marketing should also include digital marketing metrics and marketing qualified lead KPIs. Product Development and Management needs them. Operations, IT, and Finance do too.

Now that you understand the difference between performance indicators and predictive indicators, is it fair to ask if you’re looking at the key metrics that really drive your business?

We will dig in to this subject further in a series of blogs on this topic. Stay tuned and you’ll learn the keys to the KEYS – and ensure you’re always looking forward – and not in the rear view.

Using-Your-KPIs-Appropriately

Topics: Business Growth Strategy, Business Planning

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