{"id":6033,"date":"2020-01-28T07:32:41","date_gmt":"2020-01-28T12:32:41","guid":{"rendered":"http:\/\/flevy.com\/blog\/?p=6033"},"modified":"2020-12-18T22:29:00","modified_gmt":"2020-12-19T03:29:00","slug":"an-intro-to-strategic-key-performance-indicators-kpis-the-kpi-virtuous-cycle","status":"publish","type":"post","link":"https:\/\/flevy.com\/blog\/an-intro-to-strategic-key-performance-indicators-kpis-the-kpi-virtuous-cycle\/","title":{"rendered":"An Intro to Strategic Key Performance Indicators (KPIs): The KPI Virtuous Cycle"},"content":{"rendered":"

\"\"Technological innovation and intensifying competition are forcing leaders to rethink how they use Key Performance Indicators (KPIs)<\/a> to manage and direct organizations.\u00a0 Digitization has reinforced the importance of Key Performance Indicators not only in enhancing employee performance but driving the overall organizational productivity.<\/p>\n

The role of KPIs is becoming more dynamic.\u00a0 KPIs are getting demonstrably flexible, smarter, and valuable in achieving strategic advantage.\u00a0 Leading technology-driven organizations\u2014including Amazon, Airbnb, and Uber\u2014rely on metrics considerably and utilize KPIs to steer their strategy and evaluate success.\u00a0 They perceive KPIs quite differently than traditional-focused organizations, and employ them as an input for automation, and to guide, regulate, and improve their machine learning tools.<\/p>\n

To make the most out of these dynamic and strategic KPIs<\/a> of this Digital Age, leaders need to be more insightful and knowledgeable.\u00a0 They should be able to thoroughly determine which KPIs to analyze, how to measure them, and how to effectively improve them. \u00a0Understanding the value of selected KPIs and their optimization is key to aligning strategies; making the right decision to invest in data, analytics, and automation capabilities; and create a link between people and machines.<\/p>\n

KPI Virtuous Cycle <\/strong><\/h2>\n

The relationships and dependencies that clarify, educate, and enhance KPI investment are demonstrated by \u201cKPI Virtuous Cycle<\/a>.\u201d\u00a0 By digitally linking KPIs, data, and decision-making into virtuous cycles, companies can align their immediate situational requirements with long-term strategic planning<\/a>. \u00a0The KPI Virtuous Cycle has 3 key components, and it demands active cross-functional collaboration:<\/p>\n

    \n
  1. Data Governance<\/strong><\/li>\n
  2. KPIs<\/strong><\/li>\n
  3. Decision Rights<\/strong><\/li>\n<\/ol>\n

    \"\"<\/a><\/p>\n

    The way these 3 components impact\u2014and support each other\u2014keeps changing.\u00a0 Organizations aspiring to become digital-savvy should embrace, value, and relentlessly invest in the KPI Virtuous Cycle.<\/p>\n

    Data Governance<\/strong><\/h2>\n

    The first component of the KPI Virtuous Cycle is about employing authority and control (planning, monitoring, and enforcement) through a set of practices and processes to manage organizational data assets. \u00a0Leading digital organizations consider data as a strategic resource, a valuable tool for measurement and accountability, and a mechanism to facilitate meeting strategic KPIs.\u00a0 Data Governance frameworks are guided by strategic KPIs.\u00a0 Organizations should know what data sets would be ideal to predict and rank\u2014for instance, customers\u2019 lifetime value and their propensity to leave\u2014to prioritize preemptive and preventive action.\u00a0 Data and Analytics serve as a component of Data Governance.<\/p>\n

    Strategic KPIs<\/strong><\/h2>\n

    Strategic KPIs shape and govern enterprise Data Governance models.\u00a0 These KPIs include financial, customer, supplier, channel, and partner performance parameters.\u00a0 For instance, Data Governance initiatives in customer-centric organizations are prioritized to facilitate in realizing customer-focused KPIs\u2014e.g., Net Promoter Score (NPS)<\/a> and Customer Lifetime Value (CLV)<\/a>.\u00a0 Enterprise Data Governance frameworks are strongly influenced and informed by strategic KPIs.<\/p>\n

    Decision Rights<\/strong><\/h2>\n

    Decision Rights ascertain the decision-making authority required to drive the business and strategic alignment.\u00a0 Making decisions in such a way that it boosts organizational performance involves identifying the individuals explicitly involved in making decisions, charting an outline on how decisions will be made, reinforcing with appropriate processes and tools, and defining various decision rights scenarios to facilitate in automation. \u00a0It is, however, quite tricky to determine and assign decision rights when an enterprise is aspiring to empower its people and making machines function better.<\/p>\n

    Imperatives for Creating Dynamic and Strategic KPIs<\/strong><\/h2>\n

    For the KPIs to be strategically defined and become truly dynamic, the leadership needs to provide the required support by getting thorough data sets compiled and meaningful analytics performed.\u00a0 At the same time, there is a need to:<\/p>\n