How to become KPI-driven: 4 simple steps for businesses

Published November 17, 2017   |   

Are you consistent in achieving your strategic goals? Perhaps, one month your team focuses on generating traffic, but the next month you suddenly switch to reducing costs (budget for marketing activities included). It turns out that many companies do change their focus in the middle of their journey. BI consulting practitioners witnessed the cases when companies had followed this malicious practice without realizing its harmful effect.

Learn what actions to take if you aim to create a KPI-driven environment. Defining KPIs is the initial step, but you need to do more than that.

Eventually, it becomes clear that such sudden twists in activities do not contribute to a company’s success. And the advantage of using KPIs to drive performance becomes evident. However, even when determined to make KPIs indispensable part of their corporate culture, companies are often not sure where to start. Here, we share four steps for companies to turn KPI-driven.

Step 1. Set up a hierarchy of KPIs

Start by deciding what you need to monitor. Make sure that your KPIs reflect your corporate strategy and measure your company’s progress towards strategic goals. For progress tracking, businesses usually choose KPIs that take the form of sums, percentages, ratios, and averages. Of course, this is not a universal rule, but this approach helps to be on the safe side and avoid so-called vanity metrics when companies operate the numbers of big growth even if there is no real progress behind them.

To create a KPI-driven environment, a business should do thorough homework and decide on:

  • Stakeholders. Make sure that while selecting a KPI you considered the opinion of all stakeholders and the choice is unbiased.
  • KPI owners. There should be a person responsible for every KPI. He or she should monitor the KPI, react if anything goes wrong and have the necessary resources, as well as the authority to initiate corrective action.

Step 2. Select the data for analysis

Choose the data you need for both measuring KPIs and getting extra insights to boost performance. Let’s look at possible examples from different industries.

  • Banking: If a bank wants to reduce customer churn by 10%, they need to monitor the changes in their customer base to measure the progress. For extra insights, banks can analyze customer profiles and transaction data to understand customer behavior. Social data from sentiment analysis will help identify the reasons for customer dissatisfaction.
  • Manufacturing: To calculate the maintenance cost per unit and compare it with the target value, manufacturers need to track the number of produced units and the cost of maintenance (man-hours, cost of spare parts, etc.) For extra insights, manufacturers can process the data from machinery sensors and predict when and where a problem can appear, thus fostering preventive maintenance.
  • Retail: To measure the sales growth vs. the previous year, a retailer needs historical data on sales volume and value. For extra insights, retailers need to understand the behavior of customer segments, their preferences and response to promotions. This allows the companies to react via relevant marketing campaigns and product mix.
  • Healthcare: If a healthcare provider has to improve care quality by 10%, they can measure the patient complaint rate. For extra insights, they can use not only official complaints but also the results of sentiment analysis of comments the patients post on the web.

Step 3. Develop a proper visualization to track KPIs

Some may consider this step lightweight, but they would be wrong. In reality, carelessly implemented KPI dashboards can destroy the achievements of the previous steps. An improperly designed KPI dashboard or the one that gives incomplete or even misleading insights may lead to employees simply ignoring it. This means that the success of KPI adoption also strongly depends on visualization. The team should understand the status quo at a glance – that is the main goal of any dashboard. So, every dashboard component should serve only one purpose: to make users’ perception as easy as possible. For example, it’s better to use consistent colors, similar types of charts and clear legends.

Consider if you have the employees who need to access the boards from mobile devices and react on the fly. This means that these users should have the same seamless experience as those who use a desktop version. A mobile dashboard will require not only designing a responsive user interface but also solving mobile security issues, which also have their specifics.

Step 4. Communicate the shift towards data-driven management

Managers sometimes neglect communicating changes to their teams, but this is important to deal with the changes effectively. It’s C-suite who decides to make the company KPI-driven, but the employees at all levels should be well-informed about the upcoming alteration. Managers should cascade the new paradigm to the team and organize training on how to work with the dashboards and what opportunities they open.

To sum it up

Here, we’ve shared a bird’s-eye view of how to turn a company KPI-driven. We’ve identified 4 major steps: defining KPIs, selecting the data, developing a proper visualization and communicating the change. Undoubtedly, the path is not easy, and companies often prefer reaching out to companies that render professional data analytics services to ensure that the transition is flawless. Still, we hope that the article helped to define the scope of work and to pose the right questions to the development team.