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The importance of the “K” in KPI

There have been a couple of interesting threads running on Eric Peterson’s web analytics forum over the past few days. One was on setting Key Performance Indictors (KPIs) and the other one was on ways of reporting web analytics data in a meaningful way for business users. These are of course related topics because if you know what’s important to measure, then it makes it easier to focus and report that data in a meaningful way.

My fellow columnist Jason Burby has written extensively about setting KPIs for different types of web properties and it’s worth reviewing those articles. I just wanted to add some thoughts and my perspective on the subject of developing KPIs and the dissemination of e-business insight around the organisation.

In an ideal world, all organisations will have clear goals and objectives. Flowing out from those goals and objectives will be the organisation’s Key Performance Indicator’s (KPIs). These KPIs are the measures by which the organisation knows whether it is being successful or not. In a similar way the e-business channel would have its own goals and objectives which would be aligned to the overall corporate goals. From the e-business’s goals and objectives would come it own KPIs which would have some resonance with the corporate KPIs.

For example, take a multi-channel retail banking operation with branches, a call centre and an online banking presence. One of its corporate objectives might be to improve the efficiency and cost-effectiveness of its customer service operations. This might have a corporate KPI attached to it like the cost per customer transaction.

In terms on the online channel, this corporate objective might manifest itself into a desire to increase the use of online self-service facilities. A KPI for this might be the number of transactions carried out on the online bank. By measuring the volume of transactions being carried out on the online bank against its targets, the bank will know whether it’s being successful not in improving the adoption of self-service facilities and reducing its cost per transaction.

One of the potential traps when developing KPIs is to have too many of them. It’s important to remember that KPI stands for Key Performance Indicator and so the focus of measurement and attention is going to be lost in there too many metrics being tracked. My view is that there should only be a handful of KPIs at a time, ie about 5 or 6. A small number of KPIs are easier to remember and to keep at front of mind. Too many KPIs become unwieldy and result in a lack of focus on the main objectives. If you have 30 different measures each with the same perceived priority, then there is a danger of “paralysis by analysis” as you wade through a sea of metrics trying to understand what is happening to the business.

Selecting KPIs is a strategic process but that doesn’t mean that they then become set in stone. They are dynamic metrics that can change from year to year as the goals and objectives of the business change.

I believe that there is a tendency amongst e-businesses to focus on metrics that come out of web analytics packages and call them KPIs. I heard an interesting comment at a conference earlier this year from a guy who used to run Amazon in Europe. He said “Be careful of what you count. What you count is what you get”. I think that this is a powerful piece of insight as it links the way that organisations are measured into the ways that organisations (and the people within organisations) will then behave. Are you more interested in increasing page views or are you actually more interested in improving customer satisfaction?

Another tendency is often to focus on KPIs that are outcomes rather than the causes of those outcomes. Shouldn’t the focus be as much on the drivers, as on the results? For example, on a commerce site a KPI is often “Sales”. The sales figures will also typically be part standard financial reporting pack. However, sales are an outcome or a result, what is it that is driving sales and should some of those drivers be KPIs?

So, what makes a good KPI? One succinct answer from Craig Schiff, a business performance management consultant, is that the qualities of good KPIs are that “they are strategic, they are actionable and they will make a difference in improving the business”. How do your KPIs stack up against these criteria?

Once KPI’s are agreed, understood and measurable, then I believe the process of data dissemination becomes a lot easier. The organisation is focussed around the key issues and knows what data they should be looking at or looking for. There are still obvious challenges in finding ways and means of bringing web data to life and that’s something I’ll be taking a look at next time round.

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