The market for Enterprise Business Intelligence and Analytics products hit $17 billion in 2016 [1], and is forecast to hit $27 billion by 2021 [2]. Infrastructure costs continue to fall (cloud storage can be had for 1c -2c per GB [3]), and the technology to capture and analyze data continues to improve. Organizations have an unprecedented ability to measure more things, in more detail, than ever before. This is the world of “big data”.

But, just because you can measure something, should you? There is an art to assigning key performance indicators (KPIs) to business units. We’ve seen companies fall into several common traps when they define those metrics:

  1. Vanity Metrics — Metrics that always increase.
  2. Micro Metrics — Metrics that focus on the details at the expense of the business.
  3. Misaligned Metrics — Pushing top level metrics down too far.

1. Vanity Metrics

We all like seeing charts that point up and to the right. Vanity metrics are designed to always go up and to the right, regardless of whether the business is doing well or not. For example, a well-known fast food restaurant used to track the total number of customers served on their signs out front. This was great PR, but not a number that was useful for running the business — you can’t sell negative hamburgers! Other examples of vanity metrics:

  • Total registered users
  • Total customers served
  • Total page-views
  • Total shares
  • Total likes

To be clear: Vanity metrics do have a place. Marketing loves vanity metrics because they’re interesting! Infographics tend to be full of vanity metrics, and that’s ok — but you shouldn’t be running your business from an infographic.

2. Micro Metrics

In my first job as a data scientist, I attempted to classify all of our users by their propensity to buy. The goal was to focus marketing on users who would most benefit from (and be amenable to) our paid option. My first several attempts were unsuccessful because I focused too closely on individual users — in order to parameterize the myriad interactions on our site, I ended up with nearly a hundred metrics that I tracked on a per-user basis!

Eventually the project was saved when my manager forced me to zoom out, and focus on the big picture. I isolated a few key behaviors, and threw out most of the work I had done. The result was a successful KPI program that could be internalized by everyone in the company who wasn’t intimately familiar with the details of user behavior.

It’s hard to pull yourself out of the details (I know from experience!), and the urge to put a KPI on everything is strong. But consider the goal of a KPI — everyone in the business has to understand what the KPI is, what data goes into it, and how they can affect it.

If you find yourself having to repeatedly explain business processes to people as they struggle to interpret your numbers, you may be defining Micro Metrics.

3. Misaligned Metrics

The Store Manager for an apparel retailer often works within very tight bounds — she is given instructions about how to set up her store, and has little or no control over the product mix. She may have no marketing budget. In fact, the only thing that some Store Managers in Retail may control is the staffing in their store.

Yet this same Store Manager’s compensation and future with the company may depend on sales in the store! Is that fair? Given this (surprisingly common) dynamic, is it any wonder that Store Managers have such a low job satisfaction [4]?

Each layer of the business has its own function, its own purpose. The Store Manager described above was not hired to be strategic (otherwise she’d have more control over her budget), she was hired to be tactical. So why would you push strategic metrics on her? You must measure her on how well she’s executing the plans that you hand down. If the plans are executed and don’t work, it’s not the Store Manager’s fault.

Think. Measure. Repeat.

Building a KPI program is hard work. Luckily, at Square Root, we offer a complete solution. Our team will work with you to understand your business. We will bring stakeholders together to understand the problems you are solving, and the forces that act at each level of your business. We partner with your IT organization to find the correct data. And we strive to build actionable metrics that reliably track your business, and drive the results you’re after. Read how we’re committed to your customer success.

 

 

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