If you don't know what to measure, you cannot gain any insight from it. Worse, if you measure the wrong things, your conclusions may actually lead you down a path that can negatively impact business performance. The key to avoiding both options? Making sure that the performance metrics you track are actually meaningful.
Of course, that is easily said than done. Well-designed analytics programs can measure every aspect of your business, both internally and externally. But, before even thinking about implementation, they need to be based on the right metric. Without the right framework in place, you can introduce confusion and misguided decision making. Here are 6 simple steps you can take to make your metrics more meaningful.
1) Start With Strategy, Not Performance Metrics
First, it's time to stay away from one of the most common BI mistakes businesses make: starting the metrics definition process on the wrong end. Everything you do, and everything you analyze, should ultimately be connected to the overarching business strategy.
Starting with performance metrics without considering this strategy risks spending time and efforts on KPIs that aren't actually connected to your desired outcome. Instead, use your strategic goals to define measurable objectives that can be applied throughout the organization. Only then should you identify performance metrics that help to achieve these objectives, and by extension the larger strategy.
2) Develop Interconnected KPIs
A second common mistake in defining KPIs is developing them in isolation. In social media, for instance, reach, click-through rates, common trends, and conversions are all separate performance metrics. But the fact that they are separate should not mean that they need to be tracked without connection to each other.
Just as your KPIs should be connected to larger strategic goals, they also need to be horizontally integrated. In layman's terms, that means understanding how changing one metric might influence another. Identifying metrics that make sense together is the only way to make sure they will actually become meaningful in evaluating your efforts and making tangible improvements.
3) Point Your Metrics toward the Future
As you develop your metrics, ask yourself a simple question: are you simply measuring past performance, or do the indicators you focus on actually forecast the future as well? Experienced analytics professionals might recognize this question as a way to identify both lagging and leading indicators.
Defined simply, lagging indicators describe plain results. They are the effect, telling you the what but not the why. Leading indicators, on the other hand, focus on desired outcomes, and look at the events that actually lead to these outcomes.
The majority of data in your BI solution right now is probably comprised of lagging indicators. Naturally, we would love for that to flip; leading indicators are much more likely to actually predict future performance. Your goal to make your metrics more meaningful should be to flip the script, focusing your metrics toward the future rather than simply reporting out on historical results.
4) Avoid an Over-Reliance on Goals
Goals are great. Especially if you focus on leading indicators, they help you set a point toward which everyone in the organization can work.
Goals are terrible. They commonly cause problems because they narrow the focus of performance so much that some professionals will do everything they can (including unethical behavior) to accomplish them. Risks increase, and cooperation decreases.
Any experienced manager knows that both of these statements are true. So where is the balance? The key is to find common ground. Use your future-facing metrics to set realistic expectations, but be careful not to be over-reliant on goals. Only this balance can achieve lasting success in which metrics improve holistic company performance.
5) Define and Track Desired End States
Ultimately, the problem of making your metrics more meaningful comes down to a simple question: which business outcomes should you focus on? The reason most companies fail to achieve their strategic goals is because these goals are not connected to the metrics.
Just as you need to start defining these metrics with your larger strategy in mind, you also need to make sure that your BI efforts continue to maintain that close connection to the top. The only way to make an impact is to make sure that your BI is actually aligned with every internal and external aspect of your business.
That means defining exactly what you want your outcomes to be, and then building the metrics you can use to track your progress. Once you've done so, you can establish benchmarks that help you track your progress toward your goal, and increase the connection between strategy, objectives, and performance metrics.
6) Provide External Context to Internal Metrics
Finally, it's important not to forget about your external environment. You might have noticed that all of the above steps and points have been largely connected to internal KPIs. But do you know how these actually measure up to comparable data in the marketplace?
The key here, as pointed out by Gartner's James Laurence Richardson in a presentation of the same topic at Gartner's 2017 Data and Analytics Summit, is to external and internal leading indicators. Only matching up external market needs with internal capabilities helps you develop metrics that are not just ambitious, but also realistic and achievable.
In other words, these external factors can provide the context and benchmarks you need to reliably measure success over time. They allow for responsible goal setting, as well as an in-context evaluation of your place in the marketplace. Only an external consideration can make your BI metrics truly meaningful.
Taking Your First Steps Towards Making Your Metrics More Meaningful
Without the right metrics, analytics efforts are frustrating at best, and misleading at worst. That's why it's so important to make sure that as you set up and build out your BI operations, you find and define metrics that actually matter to your business.
That process can take time. It can also be complex, and definitely requires a number of steps. Still, that doesn't make it any less essential. Contact us for help in making sure that you're tracking the right KPIs, and that you can use them to actually improve your business decisions on both an everyday and a strategic level.