Four Steps for Valuable KPIs
Beyond the KPI Buzzword
KPI (Key Performance Indicator) is a powerful tool and an over-used buzzword all at the same time. A KPI is used to predict (or influence) a company’s future performance. Other metrics measure performance - what’s happening now or in the past, while an effective KPI should provide focus and inform priorities related to strategic and operational improvements.
Many companies define their Key Performance Indicators and invest some effort in making sure their leaders and team members understand those KPIs. They develop a shared understanding of key company objectives and a means of tracking progress (lagging indicators).
Fewer companies mature their KPI efforts to realize the most powerful benefits of uncovering how to best achieve company objectives. Why? Because it is hard work and there isn’t a one-size-fits-all solution. KPIs should rely more on external actions that will (could/should/do) impact progress towards a defined objective/desired outcome (leading indicators). It’s in these stages when we Drilldown into cause and effect.
Ask yourself these questions
What behaviors/actions (X) have an effect on our progress towards an objective(Y)?
How (X) can we best achieve our objective (Y)?
Now reframe your answers for X
When we focus on X, we consistently see notable progress in Y (objective).
When we invest in X, we see more progress over time in achieving Y (objective).
Are your statements about X true? Are they based on guesses or gut feel?
Where should we start?
Some companies attempt to operate with the one, single KPI strategy. There are several reasons this is a risky approach. We’ll save that discussion for another day. Other companies are drowning in too many Key Metrics. A solid set of valuable and effective KPIs should reinforce key priorities and objectives and should also inspire action. If we do more of X, we’ll make more progress towards our objective (Y). So, let’s do more of X! That sounds easy enough until you begin trying to define your KPIs, which can quickly spiral into overwhelm. KPIs should be specific to your company, your industry, and your companies stage of growth.
Like everything else in business, it’s important to prioritize and focus - first on Defining and Aligning around KPIs, then Drilling down into the data (cause and effect) and Deriving key insights. You’ll realize value just by taking the first steps of Defining and Aligning.
Define KPIs
KPIs are a quantifiable measure of performance over time for a specific objective, and the ones you choose should reflect what’s essential to achieve your objectives. They should reflect what success means. There is no one-size-fits-all list of KPIs that perfectly apply to every business or even every SaaS company. Your KPIs should reflect where you are in your SaaS company lifecycle. Are you in a rapid growth stage versus an early start-up focused almost solely on product?
Align around KPIs
Ultimately, KPIs are a form of communication and effective ones should inspire action! When you are aligned around your KPIs, they provide shared targets for your teams to aim for and milestones to track progress.
Drilldown into Data
There is no getting around the hard work of digging into your data to identify cause and effect. If you look into what you are measuring today, they are likely all lagging indicators, meaning they measure current performance. Lagging indicators are easy to measure but difficult to change because they represent history.
Derive Insights
The valuable, morsels of insight that can light your path to improvement are leading indicators. They show you how to produce desired results. They are difficult to identify, difficult to measure, dynamic, and vary from industry to industry and company to company. Over time, we can derive insights to help make better, more informed decisions.
What’s the TL/DR?
Good data → descriptive analytics (reliable metrics) reflecting what has happened
Good data insights → predictive analytics reflect what will happen, which helps us make more informed, analytically based decisions in pursuit of our objectives
Let us help your executive team choose the most effective, valuable KPIs for your business. We facilitate workshops to define the best KPIs that align with your overall company objectives, and we build a plan to align the rest of your organization around the KPIs (e.g., how they are measured, who is accountable, what key processes in your area of an organization directly influences a specific KPI).
