From non-profit organisations to household names, companies around the world use KPIs to help measure and manage the performance of both people and products. They are not without controversy but when used correctly, they can be vital in keeping on top of your business objectives.
Let’s start with the basics. A Key Performance Indicator (KPI) is a measurement of a key area of your product and how it is preforming. It is a measure of progress over time and tracks growth within a key area taking account of product features, business conditions and user trends. Targets that align to the product goal can be set and measured using KPIs, giving a level of confidence around how well the product is preforming relating to expectations.
The “I” in KPI stands for “Indicators”, which can be broken down into 2 types; leading indicators or lagging indicators:
- Lagging indicators are measurements of the current state of a business. They are important to ensuring a products goals are met but take longer than leading indicators to crystalize (like revenue produced from a new feature launched months before).
- Leading indicators are measurements of the current state of an element of the product but these have a direct relationship with the lagging indicators and if that relationship is accurately uncovered they can give companies the advantage of achieving accurate projections for the objective which will be measured by the lagging indicator in future.
This relationship is key to using KPIs effectively.
So now we’ve established exactly what KPIs are, let’s turn to the burning question…why do I love them?
Clear measurement of product value
The first part of setting any KPI strategy is to understand the true goals and objectives of your product. With these in mind, you can simplify how you would like to measure those results.
Example objective:
We want to be the market-leading provider of car parking services from Dublin International Airport. This objective is clear as it tells the business:
- The customer need you are fulfilling is car parking services
- The specific location you are focusing on is Dublin International Airport
- The goal is to have the highest market share
Therefore, the lagging indicators you will likely use are number of customers during period “x” compared to number of customers served by companies “y”/“z” etc in the same period.
Each month you will be able to judge your performance against your competitors and see if you are achieving your goals or not.
Encourage experimentation
Unfortunately, you can’t rely on lagging indicators alone or you’ll find yourself taking a highly-reactive scatter gun approach to any further product development. You will also not be able to make effective changes by identifying areas where change is truly required. This is where your leading indicators come into play.
At this stage you don’t know for sure what the leading indicators are that can effectively help you predict the results of the lagging indicator. The bet you can do is guess and believe it or not, that’s the right starting point. Use assumptions based on your knowledge of your product and customer, and start experimenting!
Follow the customer journey, map it out, see where fall off might be, compare this to your competitors, compare pricing, advertisements etc. Analyse the outcomes of the experiments and choose a new path, or simply tweak what might not be working. There are a million places to look and only by really experimenting can you find out the true relationships between leading and lagging indicators. But if you do put in the time and effort, you will reap the rewards.
Focus attention on the customer
KPI experimentation is a really effective way to get into the shoes of the customer and understand the areas of joy and frustration they can get from using your product. The relationship between the leading and lagging indicators is not just about measuring success; it is about reminding yourself that your success is solely reliant on your customer. Therefore, measuring what brings success is akin to measuring what brings your customer joy.
Improve prioritisation and processes
Experimentation can sometimes send people off down a path to prove some technical relationship between different features or components in your product. So before performing any experiment ask “why would our customer care?” And if the answer is unclear, let’s prioritise other experiments first.
Experimentation, by its very nature, takes time. You have to decide on the experiment, agree the goal, agree how to measure and judge this, agree how to prioritise, actually prioritise, develop, launch, review results and how you got there, analyse whether it succeeded or not, and think about how to improve on that performance next time…and repeat!
Those who work in an Agile or Scrum team will be familiar with these patterns, and those who are not may find that it takes a little time. But the objective is to identify the “Key” indicators so you will need to continuously experiment to make sure that the indicators you found are key and remain key after changes are made to your product. If not, then you need to find new ones.
The best way of doing this is through an empirical process whereby your team learn to improve based on the experience they build up.
These are some of the key reasons I love KPIs and to me the value of investing time and effort to doing them correctly is well worth. I’m also a fan of OKRs – “Objectives and Key Results”. But what are they, and how do they work with KPIs? I’ll leave you with that thought until next time.
