What Is The Right Place For KPI’s?

Note: Sometimes WordPress confounds me. I originally wrote and posted this on Thursday, not realizing until Saturday that it wasn’t actually showing up in my feed – thanks JKO. I am not going to bore you with the long details of what the issue was and what gyrations I went through, but let’s just say I have learned my lesson about writing posts in Word and then posting them to WordPress without cleaning out all of the extra junk Word adds to a document.

Most of us are constantly throwing acronyms and terms like KPI, ROI, CBA, performance measures, business case around without being cognizant that these mean different things to different people. For example, KPI will likely mean something very different to someone from the CFO’s office then someone who is in a line of business position. This is even truer when it comes to deeply nuanced subject areas like customer experience, social technologies, and marketing. But I still hear and read the terms ROI and KPI being used almost interchangeably by a number of people and often in the wrong context.

I was recently speaking with a friend of mine who still works for the Federal government and we were talking about building business cases, performance measures, budgeting, and aligning everything. After decades of attempting to align performance with budget as part of the annual planning process, they were giving up and going back to separate reporting on performance and budget. Why the change? His take was that it was because of issues around understanding the difference between performance indicators and ROI specifically with measuring interactions and engagement with citizens (customers) through social media. He wanted to know how do we reconcile performance indicators and return on investment for something like this. Then asked the key (or dumb) question of what are their overall business goals and their specific goals for citizen engagement. The deafening silence told me everything I needed to know.

Key performance indicators are just that – indicators of performance to measure success or failure towards a specific goal.  You build your performance indicators based upon your overall business strategy and your area specific goals. (I have laid out what I call a strategy waterfall below that demonstrates this.) For example, with disruptive technologies like social media, mobile, games, and others you need to define the specific goal(s) that you want to accomplish – better customer experiences, more sales, more new customers, etc, before you develop your KPI’s. If you want higher levels of customer engagement, then your performance measure should be the measurable indicator of your progress towards that goal.

What should not happen is that performance indicators should not dictate business goals. Too often I have seen performance measures (what is measurable) determining the specific goals for an effort. I had a company recently say that since they could measure the number of likes on Facebook and the number of followers on twitter, their goal was to increase the number of likes and the number of followers on twitter. When I asked how this related to their overall business goals, the answer was everyone else was doing it so they had to do it. Not a good business goal.

The reverse holds true too. If you have a business goal, you need to have measures towards accomplishing that goal. I was speaking with another end user about their customer experience strategy and effort. They explained to me their overall goal about improving customer experience through the use of social media and the development of a mobile application. When I asked how they were measuring their success towards those goals, they related that they were using standard measures like number of comments on Facebook, retweets on twitter, etc. When I asked how those were indicators towards those goals, they honestly replied that they really weren’t but it was all they had.

Bottom line: Building a strategy architecture is hard work with the hardest part likely putting the right key performance indicators in place. You have know what your business goals are, how specific areas contribute to those goals, how you decide on the right performance measures, and then putting in place the right strategies and tactics towards that goal. Focus on working from the top down, realize that there will be gaps, and continually test measures to address those gaps.

Question: Have you built a strategy architecture that included a disruptive technology aspect? How did that work?