What Makes KPI’s Meaningful: A Holistic Look

March 29, 2017 Rishi Grover

Even if you’re not in danger of joining the “cult of metrics,” it’s worth factoring in informal forces and the impact of digital changes.

Finance leaders may not see eye-to-eye on everything, but they can all agree that without metrics, an organization will never be successful…right?

In ‘Why You Should Be Cautious Of The Cult Of Metrics and KPIs,’ professors at Spain’s IESE Business School look at the potential over-reliance on the kind of formal evaluation criteria that’s common in businesses today. This could include everything from cash flow to return on capital investments, but the researchers say that traditional KPIs just don’t capture everything necessary to see the big picture:

“Instead, it’s high time to bring informal methods back into management control. This means re-engaging with less regimented forms of motivation and evaluation… increasing the role of discretion and common sense in evaluations, while recognizing the limits of metrics. Informal forces can include concepts like ‘work ethic,’ as well as company culture and management attitudes toward subordinates.”

Of course, these kinds of “soft” measurements may not be easily collected in a spreadsheet, but they can certainly complement what gets presented in one. Analytics truly becomes powerful when you have not only deep, accurate data to draw upon but also the cultural nuances of a particular team of other factors.

Digital KPIs

The other forces that may not easily be taken into account are those from technology. Even if you’re investing in cloud-based tools to improve your reporting or analytics, the KPIs you look at are likely based solely on your final, actual numbers. According to a post on Finextra, though, businesses need to recognize that digital transformation may require some metrics of their own:

“Businesses should have two kinds of Digital Business KPIs – one that describes optimization of the current business model and the other that measure transformative growth. Businesses should have start-up-style metrics for new initiatives, and the metrics that need to be measured should have absolute clarity.”

You could take the same approach to the informal forces discussed by the IESE Business School researchers. How are things like work ethic being affected by digital tools being used to optimize the way the organization works today? How does work ethic seem to change when people are using digital tools for longer-term benefits?

It’s true that metrics will never tell you everything, but if you keep evolving them, they are guaranteed to tell you more than you know today.

The post What Makes KPI’s Meaningful: A Holistic Look appeared first on Blog | Vena Voice | Vena Solutions.

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