KPIs and metrics: 8 ways to stop measuring the things that don’t matter
16 February 2022 • 8 min read
To use a popular analogy, effective KPIs - and the metrics by which they are measured - can be exemplified by the dashboard of a car. They consistently provide visibility of what is currently happening at a level of detail that is useful and easy to comprehend, letting you know if (and where) things are going wrong and prompting you to make decisions to fix areas of underperformance.
When everything is going to plan, your dashboard gives you reassurance that important processes are being carried out as expected - but when the lights start flashing, you are immediately alerted to the fact that you need to make a change to put things right. The dashboard directs you to the exact area that requires fixing - in the same way, effective KPIs and metrics quickly enable you to identify processes that are causing problems, to prompt action.
Whether they are looking to grow, transform or simply survive, many organisations are not succeeding in their attempts to implement KPIs and metrics. Confused about what they need to measure to understand their performance and drive improvements, they are not using a clear goal landscape to enable performance tracking for the activities that matter most, and cannot trigger key decisions when specific areas are struggling.
8 ways to use metrics and KPIs more effectively
So why is this the case, and what can you do to steer your business in the right direction? Here, we explore the 8 considerations required to make KPIs and metrics a success.
Think carefully about the role stakeholders play
Teams have diverging goals that come together to contribute to your overarching strategic objectives. When organisations set their KPIs in isolation, they usually only reflect the high-level outputs that matter to those at the top.
If your goal-setting only involves, say, the senior leadership team, your resulting KPIs will inevitably place a sole focus on revenue and profitability. While these metrics are vital, tracking them in isolation will neglect the underlying activities that drive them, meaning you will not be able to directly understand where things have gone wrong, or what you can do to make things better.
Recognise that the wrong number of KPIs can drive unhealthy behaviour
When measures are elevated to KPI status, they are elevated in importance and teams respond by prioritising their success. While this is one of the benefits of using a strong KPI framework if implemented correctly, it can create problems if incentivising staff to prioritise too narrow - or too wide- a scope of key activities and processes.
Too few measures can cause goal isolation, with teams neglecting other important activities that are not included in the framework. Famous examples include the case of Wells Fargo, whose ‘North Star Metric’ of product holding value (the average number of products held by a customer) to encourage cross-sell led to the creation of millions of fraudulent savings and checking accounts without customer consent - and an eventual $185m fine by regulatory bodies. While this example is an extreme one, it highlights the danger of misaligning incentives through KPI frameworks and the need to prioritise an appropriate number of success measures.
Conversely, too many KPIs can create inefficiencies while being difficult to maintain. This depreciates the value of ‘KPI status’ by denoting the same level of importance to too many activities and processes and leads to teams either becoming too stretched to balance the wide range of KPIs, or ignoring the framework altogether.
Getting the quantity of KPIs right is often an overlooked element of building a goal framework, however it is vital in ensuring that teams are focusing their efforts on the right areas and taking a balanced approach to meeting a business’ wide range of objectives.
Beware of vanity metrics
These are measures that shine a positive light on your business but do not help you to accurately understand or critique your performance. They depreciate the value of the KPIs framework by drawing attention away from success measures that are better placed to explain the direction of your business.
To make your KPI and metric framework work successfully, avoid vanity metrics at all costs. To achieve this:
- Present an evidence trail to show why each measure has been selected.
- Use a clear, structured approach to highlight how new measures relate to strategic objectives.
- Define coherent use cases for each metric in the context of your business to prove its value in being tracked.
As vanity metrics often arise as a result of internal politics and traditional reporting practices, gaining specific evidence to highlight why each metric has been chosen - and why others have been discarded along the journey - is the best form of resistance against measures that only serve to highlight where your organisation is already successful.
Make sure your metrics are aligned with your broader goal structure
KPIs and metrics can be appealing if quick to spin-up and implement, particularly if reporting is already set up to enable them. However, careful consideration needs to be taken to make sure they align with your overarching strategic objectives and any intermediary goals you are tracking, such as OKRs (Objectives & Key Results).
Identifying your high-level strategy and breaking this into component parts through a top-down approach allows you to hypothesise the indicators that matter most to your business. At every step of the goal-setting process, ensuring your KPIs and metrics align with your entire goal structure allows you to move toward your vision and the products and services that you primarily aim to deliver to customers, and respond where your performance drops in relation to these.
Get leadership's buy-in
Although you should be careful about using metrics to 'perform' for senior stakeholders (as mentioned above), it's still important to get buy in from senior decision makers. They will, inevitably, be the primary drivers of action in response to performance levels, so their collaboration is vital to set up and validate success measures and make sure downward shifts are responded to. Leadership buy-in gives authority to the goal structure and makes it a fundamental part of how your organisation adopts new KPIs and metrics - leading to wider, transformative adoption across your business.
While ensuring buy-in across your organisation is key to identifying KPIs and metrics that will persist, this cannot be achieved without integrating a range of staff into the goal setting process. Involving them from the very beginning allows you to form a well-balanced goal landscape, to identify the activities that are important in driving their success, how their goals overlap and conflict, and how their performance relates to your organisation’s overarching successes and failures.
Promote Data literacy
KPIs and metrics will only be useful if insights can be derived from them accurately and reliably. This means that the need for data literacy (or data fluency) is not limited to those responsible for preparing the data that feeds into KPI reports - it stretches to the very top of organisations. To drive informed decisions, business leaders are required to interpret and critique shifts in success measures in the context of wider organisational and macro factors, understanding how levers of performance fit together to contribute to success.
Ultimately, stronger data literacy allows both greater flexibility in the types of metrics that can be utilised to track performance, and better decision-making in response to performance shifts. Courses related to data fluency can allow staff at all levels to interact with data confidently and maximise the operational value of the framework itself.
Ensure data maturity
Consistency and single-source-of-truth reporting are key in the roll-out of KPIs and metrics. As the most important measures of success in an organisation, implementation of KPIs will fail if teams do not rely on the insights being presented to them, or if those insights can be challenged due to a lack of confidence in the means by which their underlying data is captured and processed.
Equally, even the most effective KPI frameworks will fail if data is not collected and reported at a timepoint that renders it useful. To enhance the value of success measures, leading indicators are required to alert staff to changes and enable them to drive change before negative impacts are realised - meaning if KPIs are not being reported on in near real-time, their value decreases significantly.
As a result, levels of data maturity can often determine the success of KPI implementation beyond the measures incorporated into the framework itself. To increase the value obtained from KPIs, your business will need to ensure accessible, consistent, accurate and timely tracking - to benchmark and respond to performance shifts while they are still relevant.
Understanding communication channels and decision pathways
To ensure the success of a goal framework, every KPI and metric needs to be actionable and clear communication channels need to be established to map the journey from performance shifts to transformative action.
The first steps to achieving this are making sure that appropriate forums are set up to review and evaluate KPIs, and visibility is granted to teams responsible for the underlying activities driving the framework. Here, transparency, data literacy and data maturity combine to ensure teams are able to confidently track and understand insights provided by the goal framework, and that they are able to communicate and evidence decision-making arising from performance shifts.
While clear use cases should also be attached to KPIs, links between success measures should also be identified to understand how they align to the supporting metrics that contextualise them. If NPS - a popular measure of customer advocacy - has declined and its supporting metrics suggest that this is as a result of lower page speed rather than brand sentiment, effort can be targeted to improve product performance and rectify the obstacles to user experience.
The more your business knows about how it should respond to performance shifts, and the clearer the communication channels in designating accountability and ownership, the more successful your organisation will be in implementing KPIs and metrics to their full potential.
Conclusion: don't set goals in isolation
Many businesses attempt to develop a structure of KPIs and metrics by setting goals in isolation, solely consulting teams at the top of the organisation and narrowing their focus to the success measures that draw attention to the things they do best.
Instead, goal frameworks should be collaborative efforts that empower teams to understand their place in the organisation and the impact they have on driving success. While covering a range of important activities and processes, frameworks should be holistic in nature, aligning to strategic objectives and offering flexibility to include new ambitions and initiatives. Strong set of KPIs and metrics can therefore be challenging to implement, however they can be crucial tools in ensuring key measures are tracked, teams are aligned and performance shifts are responded to quickly and effectively.
James Harrison is a Consultant at AND Digital.
Want to discuss how to improve how you measure success? Get in touch.