A key performance indicator (KPI) is a vital tool for an organization seeking grow smart profits, expand customer loyalty, and build a scalable workforce. While many companies stick a chronological set of numbers on a chart to project it on a wall in front of stakeholders, the reality is what they are seeing may not be a true KPI. Its just a number unless its special.
To be special, the number needs to have most of the following characteristics in common:
- Represents a hierarchy either by time, or by dimension
- Example: Sales broken by Year, Quarter, Month, Week or even day, then sliced by Sales Region
- Directly actionable with each stakeholder holding a piece of the action.
- Example: Sales are down 15% from goal, Sales Managers, Marketing Coordinators, etc can all speak to how their actions influenced the number
- Has common definition across departments throughout the company
- Example: A sale is an action by a user from a variety of channels and promotions that resulted in payment and excludes affiliates for instance. This definition is signed off by Marketing, Customer Service, Sales, and Product.
- Does not include hidden meaning and/or does not hide a trend
- Example: A number compared year over year, month over month completely ignores a trend that can be alarming. While sales could be up year over year, this metric could hide a sudden drop in sales from the beginning of the year.
- When displayed with other metrics on a dashboard, the number represents a part of the story and does not represent a conflict to other metrics.
- Example: A number is where a chart shows Sales sky-rocketing, but another chart shows New Revenue way down, and yet another charts show Average Deal Size (ADS) flat. The three charts give conflicting information, so one or more can’t be a true KPI for this business. In fact, in this case, Sales is the corrupted KPI as it does not conform to a standardized definition.
- Supporting data is transparent
- Example: Analysts should be able to review aggregate data that rolls up to the KPI for audit reasons. It provides transparency and allows for drill down capabilities. Often the Analysts receive direct support from a data team are sourced from data sources throughout the business.
- The number evolves with the business
- Example: A number is just a number unless it can change readily with the business. A team supports the KPI, new data is added when created, and definitions evolve as the understanding of the business evolves.
- A goal can easily be set and tracked from the number
- Example: If the number is fully understood, a goal can be set and tracked against. If you can’t answer, “Where do we need to be by the end of the Year?”, then its a number, not a KPI.
Throughout my career, I’ve seen numbers and I’ve seen KPI’s. The most successful companies I worked with not only have a data team to support their KPIs, but they engage in regular discussions of the KPIs at all levels of the business. Successful, scalable, and profitable businesses are the ones using special numbers at their core.
When was the last time you saw a number masquerading as a KPI?