Last Updated on 11 November 2023 at 00:31

Let’s start with a little historical context. Key Performance Indicators (KPIs) aren’t a contemporary invention. They are the modern-day avatars of what used to be performance benchmarks in the industrial era and, even before that, the rudimentary metrics that guided ancient trade routes and military campaigns. KPIs are numbers that supposedly encapsulate the health of an endeavour.

The point is that humans have always been obsessed with measurement. But here’s the kicker: today’s corporate managers become so absorbed in the act of measurement itself that they often forget the “why” behind it.

KPIs — Key Performance Indicators are sacrosanct numbers that executives and investors worship, analysts scrutinize, and employees dread.

The underlying complexities of operational reality are complex, and KPIs are linked to sound decision-making. Yet, such measures can easily turn into a mess. You’ve got your ROI, ROE, EBITDA, and a plethora of other acronyms. But what do these numbers actually tell us ? Are they isolated islands of data, or can they be incorporated into a cohesive narrative ?

I consulted several times for FMCG companies that are focused solely on reducing production costs, a clearly laudable KPI. However, this tunnel vision led them to neglect R&D investments or market needs, resulting in a dry pipeline of innovative products. The KPI was sound; the narrative was flawed.

Let’s travel into the FinTech sector, where data is the lifeblood. Here, KPIs are often sophisticated and tied to algorithms and predictive models. But even in this data-rich environment, there’s a scarcity of narrative. For instance, Wealth Management software may boast of high user engagement levels but fail to address the high attrition rate because of expert-level customer support. In such a case, the KPIs are in silos and no unifying corporate story. A cohesive KPI narrative would prompt you to look at other metrics like ‘Customer Lifetime Value’ (CLV), ‘Employees Promoter Score’, and ‘Net Promoter Score’ (NPS).

So, how do you construct a cohesive KPI narrative ? You see, the paradox of KPIs is that they are both indispensable and misleading. They offer a snapshot, a semblance of control, but they can also lead to myopic decision-making.

• Contextualization: Understand the broader industry trends, market dynamics, and consumer behaviour that influence your KPIs. This is where historical context and insider insights become invaluable.
• Interconnection: Identify the causal relationships between different KPIs. For instance, if customer satisfaction is declining, how is it affecting your customer lifetime value or churn rate ?
• Strategic Alignment: Ensure that your KPIs are not just aligned with your immediate goals but also with your long-term strategic objectives. This approach involves a deep dive into governance processes, portfolio-level management, and customer-centric R&D.

However, a cohesive narrative can sometimes lead to confirmation bias. You might be so focused on creating a story that you ignore outliers or anomalies in the data. Nassim Nicholas Taleb’s concept of “Black Swan” events serves as a cautionary tale here. These are unpredictable events that defy your narrative but have a massive impact. In the world of FMCG manufacturing, for instance, a single product recall can throw off an entire quarter’s worth of KPIs.

In the end, cohesive KPIs are not just a compilation of metrics but a strategic tool. It’s not just about connecting the dots but understanding the intricate network that these dots form. And in that intricate web lies the roadmap for strategic and operational excellence.

So, the next time you find yourself drowning in a sea of numbers, take a step back. Ask yourself, what story are these numbers trying to tell ? And more importantly, is it a story worth telling ?

• Contributeur

Elena Debbaut

Partenaire – Restructuration Opérationnelle

https://elena.debbaut.solutions/

ed@consultingteam.solutions

Elena Debbaut is a strategic execution expert to boards and executive teams. She leads and advises on complex transformations when governance barriers, internal politics, or structural fragmentation prevent organizations from executing critical decisions.

Specialities:

• governance-constrained transformation
• operational restructuring
• strategic recovery & execution