KPIs: Focus on the Special “K”

Over the years many experts have touted the impor­tance of focus­ing on KPIs. Key Per­for­mance Indi­ca­tors (KPIs) help com­pa­nies to mea­sure progress towards impor­tant orga­ni­za­tional goals. They have become a sta­ple in the field of web ana­lyt­ics as they enable orga­ni­za­tions to mea­sure the per­for­mance of online ini­tia­tives (e.g., web­sites, online mar­ket­ing cam­paigns, online chan­nels, web apps, etc.) against crit­i­cal busi­ness objectives.

Like most things in life such as fast food or Will Fer­rell movies, too much of a good thing can turn into a bad thing. The same rea­son­ing applies to KPIs — the more you have, the less you gain. Using the term “KPI” too loosely within an orga­ni­za­tion for a vari­ety of met­rics means that your focus may be diverted from real KPIs — leav­ing your com­pany with data-driven heart­burn. These false KPIs become Key Per­for­mance Inhibitors.

Think Spe­cial “K”

You know you have too many KPIs when you hear peo­ple in your orga­ni­za­tion say­ing things such as the “key KPIs”, “top KPIs”, or “most impor­tant KPIs”. For me these com­ments are like fin­ger nails on a chalk­board. KPIs are sup­posed to be a spe­cial sub­set of your met­rics. Think Spe­cial “K” when you eval­u­ate your KPIs. The “K” in KPI is “key” for a rea­son — your KPIs are key to mea­sur­ing your organization’s suc­cess, and they need to be special.

If you sus­pect that lesser met­rics have been mis­la­beled as KPIs, you need to go back to your company’s or division’s busi­ness objec­tives. You always start with under­stand­ing your busi­ness goals before select­ing appro­pri­ate KPIs. Within large cor­po­ra­tions, busi­ness objec­tives at the enter­prise level cas­cade into lower-level goals at the depart­ment and func­tional group lev­els. As a result, it’s impor­tant to know what level you’re eval­u­at­ing in order to focus on level-appropriate KPIs. For exam­ple, busi­ness objec­tives for your web oper­a­tions may focus on a sub­set of your over­all cor­po­rate goals and require online-specific KPIs.

You can’t just pluck KPIs ran­domly from a list of industry-related met­rics and hope to plug them into your orga­ni­za­tion. Met­rics that don’t help to explain per­for­mance towards your unique busi­ness goals are not KPIs. Look­ing at two com­peti­tors in the same indus­try, you may assume they have iden­ti­cal KPIs. As industry-focused con­sul­tants, we’ll typ­i­cally find some shared KPIs at com­pet­ing firms (60–80%), but there can also be some inter­est­ing dif­fer­ences. Often the dif­fer­en­ti­a­tion is in areas that make these com­pa­nies stand out and extra­or­di­nar­ily successful.

There are many fac­tors influ­enc­ing these sub­tle KPI vari­a­tions:  busi­ness strat­egy, mar­ket share, mar­ket posi­tion, prod­uct mix, busi­ness model, man­age­ment team, etc. Ulti­mately, all of these fac­tors shape an organization’s busi­ness objec­tives, lead­ing to a unique set of KPIs. An organization’s KPIs won’t change dra­mat­i­cally unless there is a mate­r­ial change in one of these fac­tors. Watch for these shifts. We find it’s a best prac­tice for clients to review their busi­ness goals and KPIs every 12–18 months. A bad KPI might have been use­ful before your com­pany sig­nif­i­cantly altered its mar­ket­ing strat­egy or changed CMOs. It’s not really about good and bad KPIs. It’s about key met­rics that are rel­e­vant, clear, and action­able — and those that aren’t.

From a con­sult­ing per­spec­tive, we find it is really impor­tant to ensure the right peo­ple are assign­ing KPIs to busi­ness goals. Typ­i­cally, the right peo­ple are exec­u­tives. We strive to get as much guid­ance and input from senior man­age­ment as pos­si­ble in all our con­sult­ing engage­ments. In terms of KPI def­i­n­i­tion, the top-down approach is far supe­rior to a bottom-up approach. Too many times a well-meaning web ana­lyt­ics man­ager or web ana­lyst pre­sumes to know what his or her orga­ni­za­tion needs in terms of KPIs — only to find out later that the final report­ing doesn’t meet the needs of the senior man­age­ment team. Do-overs are never fun or a great tac­tic for career advancement.

With a lit­tle help from my friends

Just because a met­ric isn’t wor­thy of the Spe­cial “K” brand doesn’t mean it isn’t valu­able. Many times sup­port­ing or sec­ondary met­rics are needed to bet­ter under­stand or explain KPIs. For exam­ple, track­ing micro-conversions occur­ring within the check­out process may be use­ful sec­ondary met­rics for opti­miz­ing KPIs such as rev­enue, orders, and con­ver­sion rate. While a spike or dip in a KPI may trig­ger an alert, sec­ondary met­rics may be bet­ter tools for iden­ti­fy­ing what’s caus­ing the shift in the KPI. Just remem­ber to ensure that peo­ple clearly under­stand which met­rics are pri­mary and sec­ondary.

Some orga­ni­za­tions are going to have lean-and-mean sets of KPIs. Other com­pa­nies may have diver­gent busi­ness units and goals, which may require a larger set of KPIs. Most com­pa­nies shouldn’t have more than 5–8 KPIs at a par­tic­u­lar level (3−5 KPIs would be even bet­ter, but may not be real­is­tic in most cases). Excep­tions do exist, but com­pa­nies should strive to keep things sim­ple rather than overly com­pli­cated. Make sure your KPIs feel spe­cial by not crowd­ing them out. Get on the Spe­cial K(PI) diet and trans­form your organization’s performance!

If you’re not sure what the best KPIs are for your com­pany or how to track them, Omniture Con­sult­ing can help.