Good KPIs work as an early warning signal, telling you that something is not going on as you expected. Regardless of why you need a KPI - for a dashboard or for a business scorecard - there are some rules you can follow to make sure your KPI is a good one. Winning KPIs don't come from the internet's 100+ KPIs lists, they are based on the experience of organization managers and are tightly linked to a strategy. Winning KPIs incorporate an understanding of the core business processes and key factors that help to improve business performance.
Being able to design a winning KPI is another soft skill like leadership, or the ability to motivate and engage others. That's why I'm not pretending that I can teach one how to select excellent KPIs, but it is still worth discussing how to get started on the process.
KPIs Start With a Good Strategy
Do you remember the old saying, "People don’t want a drill, they want a hole?" A similar thing can be said about KPIs: "People don't want a KPI, they want their strategy to be executed."
If you've ever found yourself searching for "online marketing KPIs", it's normally an indication of poorly formulated strategic objectives. One doesn’t need KPIs until a good strategy has been designed. There is no universal set of KPIs for marketing or for any other business. A good strategy comes first; KPIs follow.
A good strategy means that there was an analysis of the current situation followed by an analysis of possible business objectives (not business goals), supported by an action plan. Taking marketing as an example, the right questions to ask would be:
- What is the current situation with marketing? Is our marketing strategy achieving the goals of the business?
- What is working well and what isn't?
- What we can do to improve our marketing efforts?
Answers to these questions are not always easy; in most cases it takes research or hypotheses based on long experience. Regardless, coming up with a strategy won't guarantee success, and there is no golden strategy that will work for every company. KPIs enable organizations to measure the execution of their strategy, so if something goes wrong they will know whether the strategy was executed properly. If so, they can revise the strategy (and the KPIs that measure it) to make corrections.
KPIs: A Measurement Tool for Strategy
KPIs are tightly linked to your strategy. They are a specific type of metric that tracks how effectively your strategy is being executed. The terms 'metric' and 'KPI' are not interchangeable; KPIs are a specific type of metric. The following article explains the difference between metrics and KPIs.
Let's return to the strategy and how it is connected to KPIs. I mentioned that a good strategy has at least 3 components:
- Analysis of the situation
- Analysis of objectives
- Action plan
These components can be used to formulate a KPI as follows:
- An analysis of the situation will help you understand what is important
- Objectives will help you quantify where you want to be
- An action plan will help you formulate the KPIs that move the business towards these objectives
An Example: Aligning KPIs to Strategy
Let's put all of these vague ideas together into a real-world example: a company's website is not driving enough leads. In order to correct this problem, they analyze the situation, come up with objectives, and create an action plan:
- Analysis: Google Analytics shows that articles and whitepapers have very high conversion rates, but there are not many of these pages and they are not getting a lot of traffic
- Objective: To get more people reading articles and whitepapers
- Action Plan: Create more general interest articles, and promoting them in social media to increase traffic.
How do they know that they are on the right track? Let's review some candidates for KPIs:
- A company can track the number of articles released. This will give them an idea about the copywriting process, but not about its quality or the ultimate effect on business performance. These types of indicators are called process-oriented indicators. They need to be monitored on a dashboard or scorecard by the department manager, but they are not top level KPIs. (For more information on dashboards and scorecards, check out this article).
- A company can track the number of visitors attracted by new content. This indicator is more results-oriented, but we still don't know if these visitors will be converted into sales.
- A company can track an increase in sales. This indicator is results-oriented and indicates whether that strategy is working or not. But there is no action associated with it; in other words, it doesn't explain why the strategy is working or not, or how to influence its success.
- A company can track the number of qualified leads generated by a new piece of content. This makes much more sense, as this indicator is linked to the ultimate objective of the company (get more leads), but sometimes it might be a tough task to track "visitor to lead conversion," so we might need something else.
- A company can add an indicator that will show the number of "likes" that an article gets in that period of time. This metric will be an indirect indication of the level of the content engagement. Together with a "leads number" it can give a lot of information about how successful a strategy is.
- A company can track the efficiency of marketing channels, such as the total leads from various social media websites, press releases, or email newsletters advertising the new content. New promotion methods need to be identified and measured against old ones.
So Which One is a KPI?
As you can see there are a lot of metrics, the question is which one is a good KPI? Unfortunately, a "one size fits all" KPI doesn't exist. In this example I would say that "the number of qualified leads generated by new content" is a good KPI for the executive team. It shows the big picture of how a new content strategy is performing. Company management will be able to track the increase in leads and know that new content is responsible.
Other metrics may be better suited tomanagers of the marketing department. At this level, it makes more sense to track process-oriented metrics. For example, "number of the articles released," "number of likes" and "conversion rates by marketing channel" will give more precise information to help marketing staff to make fine-tuned adjustments.
- A good KPI is tightly linked to a good strategy. As a consequence, it is not possible to come up with a good KPI in the absence of a good strategy. A good strategy requires analysis of the problem, setting realistic outcomes, and specific, measurable actions that can be taken to reach the desired outcome.
- When your strategy is being executed, you need to know if you are on track or not. KPIs provide a way to measure how well your activities align with this strategy.
- KPIs are not only for top management. When a strategy is understood and turned into actionable KPIs at every level, the organization will be more aligned and successful.
I hope this article will serve as a good starting point for anyone who is looking to improve strategic measurement using KPIs. I'm interested to hear your opinion.
Feel free to share a positive or negative experience you've had with KPIs. Why do you think KPIs worked or did not work? Were your KPIs aligned with your strategy?
Take a journey from a bad KPI to an excellent strategy
About the Author
Aleksey Savkin is a founder of AKS-Labs, vendor of BSC Designer software and tools for software engineers. His areas of expertise are remote team management, Balanced Scorecards, KPIs, business performance management, general info-business development and marketing. Aleksey is the author of a number of articles and books on the Balanced Scorecard. He runs Balanced Scorecard seminars at the Moscow Business School (MBS).