Leading With Next-Generation Key Performance Indicators

by: Michael Schrage and David Kiron
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Accelerating technological innovation, intensifying competitive pressure, and increasing customer expectations are forcing business leaders to rethink how they use key performance indicators (KPIs) to lead and manage the enterprise.

Based on a global survey of more than 3,200 senior executives and interviews with 18 executives and thought leaders, we find business leaders worldwide are struggling to strike a workable balance between tactical and strategic KPIs; operational and financial KPIs; and KPIs that effectively capture the moment while anticipating the future. This imbalance is a source of measurable dissatisfaction and concern as data for KPI improvements continues to increase. Executives also appear torn between adding more detailed KPIs or lasering in on a smaller, simplified set. While no consensus KPI best practice emerged from the survey, we did find a small slice of companies are exhibiting sophisticated data-driven and analytically innovative approaches to maximizing the impact of their KPIs.



Overall, however, most companies do not deploy KPIs rigorously for review or as drivers of change. In practice, KPIs are regarded as “key” in name only; the most prevalent attitude toward them seems to be one of compliance, not commitment. The responses suggest this perfunctory treatment reflects cultural and organizational inertia, not technical or operational limitations. In terms of perceived effect and influence, our survey finds that, ironically, most organizations are KPI underachievers. They get less value than they say they want.

Rapid advances in machine learning (ML) — that is, a machine’s ability to improve its performance based on previous results1 — are poised to radically influence how executives use KPIs to monitor and spur growth. As next-generation predictive algorithms are incorporated into business process planning and design, they seem destined to inspire next-generation digital dashboards. KPIs will consequently offer predictive and prescriptive indicators, not just rearview-mirror reviews. Data-driven companies that leverage these advances by reconceiving their KPIs will enjoy distinct competitive advantages.

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References

1. “Machine Learning,” www.webster-dictionary.org.

2. J.R. Raphael, “30 Incredibly Useful Things You Didn’t Know Slack Could Do,” Fast Company, Feb. 20, 2018, www.fastcompany.com.

3. R.S. Kaplan and D.P. Norton, “The Balanced Scorecard — Measures That Drive Performance,” Harvard Business Review 70, no. 1 (January-February 1992).

4. T. Levitt, “Marketing Myopia,” Harvard Business Review 82, no. 7 (July-August 2004).

5. M. Strathern, “‘Improving Ratings’: Audit in the British University System,” European Review 5, no. 3 (July 1997).

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