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How to determine the right Key performance indicators

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There seems to be a big disconnect between analytics and KPIs. Based on a survey by renaissance solutions, 92% of companies don’t track KPIs. Yes, 92%. You would think that tracking key performance indicators is essential for growing a business. Think about it, on Shark Tank, they rip people apart for not knowing their numbers.But that's exactly the probelm. Key performance indicators are not the same as your business metrics. This is often confused because they are both numbers.

The difference? A key performance indicator is specifically defining to fit into the overall framework. In other words it has purpose.

A key perfromance indicator is going to answer a specific business question with a direct answer.

And finally, a perfromance indicator is going to indicate future perfromance of a metric by using past activity and results. 

Business leaders often confuse key performance indicators as business metrics because one metric may be a KPI for one business and not the other.  Performance indicators are metrics with a specific place and purpose that answer a specific question.

They provide clear information that you can use to take focused action. Robert Moore from RJMetrics gives two great examples of solid KPIs, Marketing ROI by campaign or Sales performance by product. You immediately know the campaign that needs focus or the product that needs focus.

Knowing which action to take and when is the difference between indicators and analytics. Every business is different, every team, product and strategy is different. What’s important to one company may be completely irrelevant to another.

If you wanted to measure social media leads, you would be able to do that without first organizing your KPIs and building a framework for them to live in. And you would get good, accurate data. The problem? You are tracking and measuring this metric out of context.

You don’t know how it affects other parts of the business, or how it affects the customer. When different business functions and teams are trying to satisfy the requirements set by the performance indicators but they have nothing to do with each other, the business gets pulled in opposing directions and loses all focus.

The result you end up with is ... Blockbuster, Twitter, Blackberry, Xerox, Borders Books and the list goes on. There are countless examples of this happening in the real world.

To pick the right key performance indicators for your team and your objectives, there are two additional steps that you first need to take. First you need to organize your KPI framework. This shows you, at-a-glance, how all your KPIs contribute the overall objective of the business. One of the most popular strategic frameworks in use today is the balanced scorecard. And it is named after its function.

Once you have a clear idea how you are aligning your activities you are going to be looking for the data. This is probably one of the most important and most frequently skipped parts of this process. It’s no surprise that big data can cause more headaches than solutions.

If you aren't asking the right questions it makes it hard to get the right data. Because of the very nature of big data (the fact that there is a lot of it) makes it all the more important to get answers to specific questions that will filter your massive data sets down to specific information that you can work from.

Always make sure your indicators link to an overall objective as part of your framework. Now identify questions that you need the answers to so you can make confident decisions and take/assign the right actions.


Strategic questions

The first thing that you want to do when determining the marketing KPI, is to look at a bunch of different metrics and determine if you can make the right decisions from that information. If one of your customer objectives is to increase lead conversion among a specific audience (buyer persona) then start by taking a pulse on what is currently happening and what is contributing to those results. How much web traffic are you getting, how many leads? What sources drive the most traffic and leads? What types of content convert the most? How is that content distributed and promoted? and so on.


The idea is to think through the ways you will use the information to make decisions or make strategy changes. It’s also important to think through the ways the data won’t influence a decision. This is important for many different reasons. Here is a quote from an interview i came across in Forbes, “It’s insulting to have to stop my real work every few hours to focus on the numbers that someone assigned to me without even talking with me.” This is good example of not being transparent about how KPIs will be used, resulting in employees resentment to collecting the data. But more importantly - KPIs are supposed to be used to provide information that creates action - if your team isn’t committed to the process of collecting and analyzing the indicators they won’t have the right information to make the right decisions, potentially resulting in poor performance that won’t surface until it’s too late. Your team won’t see how all these charts and numbers  influence or contribute to other key performance areas.


Define Metrics

Describe the process surrounding your data collection in detail. Describe any grading system you would use or how different data may be used to calculate new data. You want to make it possible to drill into the data deep enough to provide accurate insights but not to overwhelm. Determine what data you are collecting and how often it will be collected? What method is used to collect the data? Where is the data collected from? Where is the collected data stored? Mapping how each indicator is computed will give you a good idea if it’s the right one.  


Map relationships

Build your target using the S.M.A.R.T(specific, measurable, attainable, relevant and timely) goal setting framework. Start with a Specific target to hit. Make sure you are able to measure your performance. Use historic numbers to set a goal that is attainable and your baseline to ensure each is relevant to your strategic objectives and challenging enough to move the needle. Finally you want to put a timeline to your goal. How long until you reach the goal.


Assign Positions

Who is responsible for the KPI? For collecting the data, and using the information to take action? Whom is using the data to make decisions directly? Provide insight into how the indicator is impacting other indicators so everyone can see the bigger picture of how they are contributing to overall growth. By assigning accountability to someone for a specific key performance area you begin to focus their day-to-day activity. Be sure, when assigning accountability, you provide context around the area. Allow them to see how they are contributing to top line or bottom line results (depending on the position) and how their results impact other results. Not only does this give the actual work more purpose but it also demonstrates the importance of using data to guide decisions.


Develop Reporting

Everyone of your KPIs should be featured in a dashboard but also have its own reporting schedule. Your reporting is critical for presenting progress towards a long term objective to the stakeholders. You want to know which reports contain which KPIs. You should report on a monthly, quarterly and annual basis. This is not to get confused with using your KPI dashboards on a daily basis. The idea is to easily build reports from your KPI dashboards so you can easily present, in a more formal manner, your results to those who don’t usually work from that KPI. For example, a social media marketer might present their Social Media Interactions KPI to the brand awareness manager who is looking at social reach, organic and branded traffic and PR results. They don’t need to see social interactions on a daily basis but each month they are able to chime in and provide some coaching.  

 

Think about it this way, we want to look backwards and forwards at the same time. We want to know how we have performed against our targets, which when you think about it is showing us a snapshot of the past. This is because all the performance that filters into those numbers has already been done. We also need to know what type of future results we are on pace for compared to where we thought we would be.

This gives us the best of both worlds. Having this information allows us to know how we are tracking towards our targets and based on our latest snapshot, provides us with a more accurate picture of what is to come. You forward looking indicators measure you against the previous backward facing indicators so you can always focus on improvement.

 

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How do you currently think about key performance indicators? Any other thoughts? Let me know in the comments? Or reach out to me on twitter @davidalberico