How to create “Killer” KPI’s.

By David A. Bishop

As a vendor, I was once invited to a client site with the goal of “creating some key performance indicators” for the business. The only representatives from the client were two IT managers and a young project manager, all three of which had been largely focused on IT infrastructure projects, and knew little about the business. Not a single person from the business side of the house was present. Needless to say we sat looking at each other for quite some time, and the discussions were tedious. It seemed that someone from on high had ordered “some KPI’s” with the expectation that something relevant could simply be conjured up from the ether. Key performance indicators for your business are just that. They are indicators driven by your business that leaders use to inform their decisions. Understanding where the data comes from or how to get it should not be the primary focus at first, those problems can usually be solved, but without input from the business on what is most important to them, the impact of what gets created, if anything, will be marginalized. Having been in these kinds of discussions often, I came up with four important steps that not only create great key performance indicators, but “killer” indicators that go above and beyond the typical.

1. KPI’s should be based on business need first.

I just built the case for number one in my opening paragraph. It all starts with the business. KPI development is often mismanaged in the same way agile adoption is, being driven from the bottom up by developers or project managers instead of executive leadership or the business. A technical expert is not necessarily a business expert, and expecting such to conjure up relevant KPI’s from the depths of available data will likely bring lackluster results.

2. Killer KPI’s are “transformative” indicators that tell you something about your business you don’t already know.

At one job long ago, I was asked to take over “phase three” development for the company’s business intelligence solution. I quickly realized that the contractors working for the past three years had done little more than port data over from several existing systems into one location, along with some nice visuals. It provided a central location for users to access all of their relevant data, but added no other value.

KPI’s are generally part of an overall business intelligence solution that is typically based on ETL (extract, transform, and load) approaches. The problem is that all too often the “transform” aspect of ETL is often left out, with most KPI’s being nothing more than porting data over from some antiquated system into a nice, pretty business intelligence dashboard. The user has the benefit of getting all their information in one place instead of going to multiple sources, but little else. “Killer” KPI’s take the needs of the business, analyze data from multiple sources, and combine it to create NEW KNOWLEDGE or insights that would otherwise be unavailable. Executive leadership now has special knowledge they didn’t have before, and perhaps even their competition doesn’t have. The KPI solution is transformed from a mere data aggregator, to a transformative business tool that provides competitive advantage.

In the example mentioned above, “phase three” turned out to be a whole new BI strategy, but what resulted put the business light years above their industry peers, and they continue to reap the benefits to this day.

3. Composition of Killer KPI’s should be based on good research and engaged scholarship.

The wants and needs of the business come first, and this should drive KPI development. Such development, however, should be based on sound research principles to ensure validity, accuracy, and relevance. Approaches based on anecdotal evidence, trial and error, or tribal knowledge are not good enough. This is particularly important when building complex, transformative KPI’s that provide new knowledge based on computation and analysis, rather than simply porting data from one system to another.

4. Killer KPI’s are predictive, allowing leadership to visualize tomorrow, not just today.

These days business intelligence has transformed into business analytics. Such solutions not only provide information on the current state of the business, but also the ability to perform predictive analysis. High rates of technological change are resulting in ever more turbulent markets. This disruption has created the need for tools that inform leadership decisions to reduce risk, adapt quickly to changing conditions, and above all, garner the greatest market share in quickly evolving, or devolving, markets. The good news is that the typical enterprise has more available data to mine than ever before. The trick is to leverage such “big data analytics” into a comprehensive BI/BA solution. Unfortunately, our capacity to create data has vastly exceeded our ability to make sense of it, and many companies are still struggling to do so.

The Agile Worx™ solution is based on years of research into the most important indicators for agile businesses. It not only extracts, it transforms and analyzes your data to provide users with actionable intelligence that makes a difference both today and tomorrow.