KPI Frameworks: The Foundation to any Business
There would be many articles talking about how one can go about building a KPI framework, but what I am going to share here is an analyst’s perspective. How can an analyst go about building KPI frameworks for clients, no matter which industry they are from: Auto, Retail, Telecom or Travel & Hospitality.
A KPI Framework is essentially a structured documentation of the KPIs and goals a business has.
Let’s take an example of the Auto industry. I believe that currently, this industry is going through a rapid change in their digital business transformation journey, including the advent of
e-Commerce and other trends.
As you all know, the full form of KPIs is Key Performance Indicators. In reality, if you take a closer look, they really are ‘Key Pressure (Acceleration) Indicators’, where in, if a business focusses on these, it can lead to huge acceleration in growth.
Growth today is multi-dimensional. Specifically, the way new-age startups are disrupting various industries, revenue is no longer the only success parameter. For instance, WhatsApp — despite no revenue stream, has grown exponentially over the years.
Customer Experience: Avoid the Blind Spot
This, however, highlights a key blind spot. The business is so used to looking at the metrics which are the highlights in review meetings and shareholder meetings, that they turn a blind eye to other important metrics. Measures which give an indication if the industry is going to drift into a new normal, which may make the existing ways of products and services irrelevant to their new, evolved customers. And this is where the answer is: Customer experience.
As analysts, our role is to be able to quantify the customer experience. This, along with business metrics, helps build a holistic view of the Key Performance Indicators.
We start by looking at Customer Experience goals and define the exact metrics that can help measure the goals. The focus here will be on digital products/services as these are the most difficult to quantify in terms of experience.
Customer Experience Goals could be categorized into: Visibility, Findability and Usability.
For each of these goals, we define the digital focus area, functionality in focus, and eventually the metrics which are relevant.
Building a KPI Framework
The process for developing the framework can be broken down into the following steps, each of which answers the questions listed below them:
1. Business Understanding
What’s the industry and the context?
What is the business?
What are the important regions and product lines?
What’s the current focus and what’s the vision for the future?
2. Product (New/Current) Understanding
What’s the product/service for which we need to define KPIs?
What are its features?
Where does it lie in the business portfolio?
What’s the competition?
3. Business Objectives
What was the reason behind their building the product/service?
What customer problem were they looking to solve?
Finalize and align with the business on the top 3 objectives they have for the product/service
4. Understanding Customer Experience
What are the key parts of the customer experience?
What are the measurable touchpoints?
5. Mapping objectives to functionalities
Which functionalities serve which objectives of the product/service?
Are all the functionalities in line with the objectives?
6. Listing metrics and dimensions for measurement
What all would need to be tracked/measured to determine success for each functionality?
Make a full comprehensive list
7. KPIs
What are the top 10 metrics for the business objectives?
How will they be measured?
Considerations while building KPI Framework
The business metrics and customer experience metrics together form a framework that helps us clearly define and measure all aspects for the business. However, certain considerations are key while building the framework. These are as follows:
1. Product life cycle
In case of a new digital product, customer experience is even more key as conversion takes time to come by. Like in any product lifecycle, the sales peak at a later stage. Only looking at revenue may not give the right picture when the product is in the introduction or growth phase or say, when the innovators are buying your product/service.
Such a perspective will help in identifying the right KPI for the business.
2. Industry perspective
Digital penetration in each industry is different. Understanding this will highlight the importance of digital KPIs for the business. Considering there has been ~10 years’ worth of digital transformation in 1 year, innovations in digital transformation strategies are upgrading the entire value chain.
E.g.
o In Retail: Unification of online and offline data has enabled retailers to better understand customer buying patterns, and are now serving them in a more personalized manner.
o In Travel & Hospitality: Innovations like Augmented Reality along with other technologies have made it easier for people to plan their travel by making it more fun and convenient, thus improving customer engagement with the brand.
o And for Auto: Buying new vehicles online is the latest trend that is growing. A study by Frost & Sullivan says: “By 2025, it is estimated that 6 million vehicles will be sold through online platforms.” Hence, online vehicle retail will be the key focus of digital transformation of auto giants across the world. And just like an Amazon Prime customer spends more than their non-Prime counterpart, customers would now expect personalization in their car purchase experiences as well, which will help businesses by upselling from base vehicle.
Selecting the right KPIs would be very crucial for businesses to assess their momentum with respect to the shifts in their respective industries.
3. What problem is your digital experience solving for the customer ?What challenge is the customer facing which is hampering the growth of your business? How will your digital experience solve this problem? For example, in the Automotive industry, a customer was not able to order a car online which led to a huge dip in car sales during the pandemic. Today, many major automotive players such as Hyundai are being pushed into offering e-commerce solutions.
4. Digital Strategy
You need to be aware what your client’s digital strategy is, and what are the goals they have in mind from digital. This will help you define the metrics that will really benefit those goals. It’s basically the so what? Eg. if you suggest that they should increase funnel conversion, so will it increase sales?
Additional Reading
· “KPIs: An essential framework” (Google) https://www.thinkwithgoogle.com/intl/en-145/future-of-marketing/creativity/kpis-essential-framework
· “The Anatomy of Effective KPIs” (MIT Sloan management review) https://sloanreview.mit.edu/article/the-anatomy-of-effective-kpis
· “Create KPIs That Reflect Your Strategic Priorities” (Harvard Business Review) https://hbr.org/2020/02/create-kpis-that-reflect-your-strategic-priorities
· “How To Choose the Right KPIs for Your Business” (HubSpot) https://blog.hubspot.com/marketing/choosing-kpis
