Leadership Strategies

Forging Effective KPI’s

A guide to developing the most effective KPIs to drive behaviors and enhanced business results
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Pinpoint Improvement, Maximize Profit

Finding ways to enhance profits and competitiveness transforms an IT organization from merely an overhead cost to a full enterprise partner. But, how do you get there? Remember the guiding principal behind Management by Fact, Lean Six Sigma, and Performance Management; common enterprise initiatives, “What gets measured gets improved”. The key takeaway is the right measures will support enhanced communication between service organizations and their customers, resulting in prioritized opportunities for improvement.

Furthermore, ill-advised measures waste money, divert attention from the real issues and inflame customers. For example, a common mistake that IT organizations make is to measure the quantity and closure time of service requests where the closure time measured is when the issue escapes the service desk’s responsibility and bounces to another part of IT. Closure does not equate resolution. Additionally, closure time does not take into consideration the complexity of the issue, making closure counts and timing a part of individual performance often unfair.

The quote, attributed with variations to both Peter Drucker and Lord Kelvin, is not without controversy, however. The fundamental controversy, especially apparent when considering digital transformation KPIs, stems from the complication of knowledge work; innovation, customer satisfaction, data capitalization, digital operations, and talent supply will not succumb to traditional measures applied to repeatable, documented processes or to typical products. Albert Einstein put it well – “Everything that can be counted does not necessarily count; everything that counts cannot necessarily be counted.”

Think Systematically

It’s necessary to apply systems thinking across the enterprise as a whole. An individual process alone could be performing well and have good metrics to show for it – but measuring that process in isolation can be misleading. Conversely, keep Occam’s Razor in mind when viewing the entirety of the enterprise performance. If you are looking to improve cash flow don’t overlook routinely simple tasks such as the preparation and delivery of invoices or the submittal and approval of timecards (especially within a professional services organization). If the sample tasks need improvement, is it time to add RPA to your digital transformation initiative?

This holistic view applies to the greater issue of KPIs for digital transformation now on every digital savvy board’s agenda – but the board and C-Suite still care about available cash, so don’t rush to throw out the basics, rather reinforce the connection to value creation. A successful growth strategy for any enterprise balances risk appetite with organizational ability to innovate. Digital transformation KPIs should reflect the state of an enterprise to create and preserve value as well as the potential that the current state can destroy value.

Utilize KPI’s to Improve Metrics

That dichotomy is a starting point for KPI definition; innovation is driven by humans and humans, either though ignorance or malevolence, are responsible for the situations that can topple reputation and financial standing in the event of a cyber event or operational misstep. KPIs should be chosen that drive institutional behavior throughout the supply chain to create, not destroy, value.

KPIs should reflect the correlation and causality of metric impact on value creation and project that in a clearly understandable manner. This will improve the metrics culture and business acuity across the enterprise, especially in the back-office functions that may not know how impactful their actions are. This will promote greater common understanding, enhanced communications, and stronger relationships company-wide.

Use leading indicators (the predictor of quality) if you have only historically monitored lagging indicators (the quality of results). If funding digital transformation is an issue, look at the mix of centralized and decentralized spending that may include redundant/hidden expenditures. Don’t spend more time and money collecting and analyzing metrics that are not useful or are never looked at. Consider starting with these factors of success in digital transformation:

  • Digital operations: Business’ ability to transform and automate business processes (e.g. % of budget devoted to digital operations vs. traditional)
  • Customer advocacy: Customer advocacy (e.g., net promoter score [NPS])
  • Data capitalization: Organization’s return on data-related investments
  • Innovation rate: R&D investments, efficiencies in cycles, and innovation returns (e.g. applications of AI/ML in use, # of processes performed by RPA)
  • Talent: retention, supply, qualifications, morale (e.g. voluntary turn over plus employee satisfaction, days to fill openings)

How to Use KPI’s to Ensure Digital Transformation

 IDC research shows that even companies that are successfully leading transformations are challenged in getting digital capabilities fully adopted across their organizations. Join us for the Forging Effective KPIs – Best Practices for IT Leaders webinar on October 14th at 11 AM/EST to learn to develop a plan to use new digital KPIs to drive transformative IT capabilities throughout your enterprise. We want to empower you to use KPIs to improve internal outcomes and spark business results. 

Cora Carmody

Adjunct Research Advisor, CIO Executive Council (CEC)