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.