Rethinking KPIs In The Digital Era
© Getty Images Artist's rendering of a person accessing data on a smartphoneKPIs have been around for decades, but many of these KPIs have not been modified or updated to reflect current economic and economic conditions. And as digital technologies accelerate, especially post-pandemic, it's becoming increasingly clear that businesses need to adopt modern solutions.
"The classic work on KPIs is the Balanced Scorecard by Norton and Kaplan," says Michael Schrag, Sloan School Initiative Fellow in the Digital Economy at MIT. “They released it in 1992. Basically, I think the work they did 30 years ago is very good and well positioned, but the reality is that digital transformation is changing the economics of devices, scales and measurements.”
In other words, companies will always keep an eye on certain KPIs, but new ones need to be added and new approaches applied.
"The old idea of some KPIs - sales and profit - yes, we'll keep them," added Schrag. "But the way people work together in the financial world, the marketing community, the human resources community and around those KPIs needs to change dramatically."
That was the gist of Fortune Wednesday's virtual session on changing the CFO's role. Shrage provided the information to Harmit Singh, Executive Vice President and Chief Financial Officer of Levi Strauss & Co., and Alka Tandan, CFO of Gainsight, during a speech on how to rethink key performance indicators in the digital age.
One of the highlights was the need to increase consumer KPIs. Rather than just tracking sales or profits, Schrage noticed an increase in customer experience KPIs.
"This is an important and critical area for Levi Strauss & Co," said Singh. "He's 160 years old. We have old systems. We have traditional approaches."
But Singh said the clothing company, which used to sell jeans wholesale, is now shifting to a consumer-centric business model, opening 100 new stores every year. It currently has around 3,000 websites.
Due to this change, the company's key figures are also changing.
"If you think you understand our stakeholders, employees, shareholders and customers, we develop KPIs," Singh added. "Traditionally it was sales, revenue and cash and now we're working with more innovative metrics - customer life cycle value, CSAT scores [customer satisfaction] are important."
Interest also changes his approach. Founded in 2013, Gainsight is a technology company with a software platform for customer success.
"So we're definitely joining the burgeoning KPI group," Tandan said. “We have a recipe for success for everyone. We look at employee success. We look at customer success and then at investor success. We are a customer-centric company. That’s why we often define these KPIs for the industry as well.”
Historically, he says, one of the KPIs used to measure customer success was a company's overall retention rate.
"But the situation is changing, especially in these economic conditions," he said. “Northstar's metric right now is net loyalty. It's really about looking at your customers and seeing not just which customers will stay, but which ones will grow.”
With this type of KPI, Gainsight can not only measure its growth, but also make changes to its approach to improve efficiency.
"Today, when it costs a lot of money to acquire a new customer, it becomes more effective to look at the existing customer base and expand it that way. I think every CFO and also investors appreciate that," Tandan said.
This is an area that Schrage believes will change in the future. While KPIs are great for showing what a company has accomplished, they don't always provide a roadmap to the next goal.
"Lead data measures that engagement. Lead data is what they expect in terms of driving," Singh said. "But how do you get a leader? Future".
Using KPIs in this way requires data sharing between companies. Schrag says data is often scattered in the current situation, but has become more accessible thanks to technology. Now it's up to the people looking at this information to share it.
The idea that an organization can deny access to valid data. That means data management is not healthy... For me, the main issue here is data management,” said Schrag.
Singh began publishing this data by moving to a unified ERP (Enterprise Resource Planning Software System) for Levi Strauss that improved access to information.
"You have to think about it in a very different way, and like I said, it's a bit of a journey," Singh said.
According to Schrage, some companies have set up Slack channels to discuss KPIs, which provide a collaborative way to work on information.
"Then it becomes an asset," he said. "For example, the reason the numbers are lower is X, or there's a real possibility that we're missing something."
All agreed CFOs must take steps to ensure data is shared and used correctly from now on.
"It's great when CFOs get together with people and ask, 'What are the three or four KPIs that we use to drive risk-appropriate leadership?' How well do they manage management?" Schrag said. "Because some KPIs are related to helpful tips. It's great if I tell you what I've done. But mentoring with KPIs seemed like a great opportunity for forward-thinking research and analysis ."
This story originally appeared on Fortune.com
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