Why KPIs are dead

“ Insistence on managing to an established set of high-level metrics has prevented many organizations from seeing the benefi ts of their new data assets.”

The Era of KPIs is Over

Key Performance Indicators, also known as KPIs, have become part of the canon of management practice over the last few decades. The idea is that you define a set of key metrics: for example, new customers, customer churn and bad debts; and run your business by them. When KPIs first came out they were a great innovation. They helped companies identify the driving forces of their businesses and standardize on a set of metrics to define success. Most companies went through a useful process of defining KPI’s, creating scorecards, and implementing a regular scorecard review process.

The problem is, KPI’s don’t work anymore.

What’s changed?

What’s changed is the pace of business. A scorecard that was designed two years ago, or even six months ago, may not help you see important changes in your business today. A media company operating on an old scorecard might have failed to recognize the rising importance of social media in advertising campaigns. A food distributor operating on traditional KPI’s might not realize that due to changing consumer demand, organic foods are becoming a new driver of the business.

So why not just incorporate the new information into your KPI scorecard? Create a metric for the percent of organic food products in your portfolio? That’s one answer. But demand and supply markets move so fast today, you’ll be in a constant process of redesigning and redeploying scorecards if you do that. And some changes may not be important enough for a permanent scorecard—a manager may just want to see drill into a new trend or ask questions on the fly about the business.

The landscape of business has changed, and many companies find that traditional business intelligence as represented by fixed KPIs and scorecards is unable to support the new needs of their organization. Another major change in business has been the scale and complexity of data available for analysis. With the advent of new data sources such as web analytics, retail sensor data, and ecommerce data, companies have a huge opportunity to understand their businesses more deeply and gain an edge over their competitors. But insistence on managing to an established set of high-level metrics has prevented many organizations from seeing the benefi ts of their new data assets. What’s needed is a way for people throughout the organization to get access to and get meaning from the information that is relevant to their
responsibilities.

The new guard

What the modern organization needs is to be nimble and able to react optimally to ever-changing markets. Terms such as self-service BI, data discovery and agile BI have been cropping up, indicating the arrival of a fresh set of tools to address these needs. The vision for self-service BI is an enticing one: to provide business users with direct access to all the data they need to make critical business decisions. To provide them with easy-to-use tools that let them ask and answer their own questions, without having to submit a dashboard change request or learn an arcane query language. To enable them to share their fi ndings with a click of the mouse, not a web development project. And to transform IT into an enabler, rather than a gatekeeper and hindrance to business intelligence.

Self-service business intelligence is simply business intelligence for a fast-moving world.

The new way: KPIs and ad-hoc analysis

So no, KPI’s aren’t completely dead. Having a set of common, standardized metrics across an organization is still a useful management practice. What’s dead is the idea that all you need to know to manage your business can be defi ned at once and measured in one way. Also dead is the idea that today’s big data assets can be easily distilled into one set of numbers that are equally relevant to everyone in a department. This kind of thinking cuts off innovation and prevents managers from seeing new threats and opportunities.

[Extracted from Digital Information Management, Jan 2011]

 

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