Key performance indicators, KPIs, are not new: It’s said that way back in the third century, China’s Wei dynasty began using them to rate the behavior of members of the royal family. Fast-forward to the 1990s when they became valued tools for measuring the degree to which businesses were achieving their targets. MIT’s Sloan Business School recently completed a major survey regarding the ways in which KPIs are being used today. MIT Fellow Michael Schrage, in his Big Think Edge video ,“Leading with Next-Generation KPIs: Evaluate Your Organization’s Alignment,” reveals what researchers wanted to know and what they learned. The video is part of Schrage’s six-part Big Think Edge masterclass that explains how to get the most out of your company’s KPIs.
Why the MIT survey happened
Schrage and his team were interested in finding out how the use of KPIs has been impacted by rapid advances in data-gathering and analytics tools. “We did this survey,” says Schrage, “because oh my god, every organization in the world has access to a hundred times more data now than they did six or seven years ago. But wait, it’s not just they have at least a hundred times more data, they have machine learning algorithms, computational infrastructures, statistical analytic tools to get more value from that data.”
“There’s been a transformation,” says Schrage, which raises an obvious question: “Really? KPIs from 2010 are good enough?” The survey was able to group company management teams into one of three rankings based on their effective leveraging of KPIs and today’s technology.
In this group, companies seemed to be working with KPIs simply out of a sense that they were supposed to, but not really embracing their value. “They were hit and miss,” Says Schrage. Their KPIs “could be, maybe not, connected to strategic outcomes.”
“On average,” says Schrage, these companies, “were not doing key performance indicators for the sake of doing key performance indicators, and they avoided, for the most part, the perfunctory aspect of it. Yes, we have a KPI. Yes, we’re measuring. Yes, it works. Yes, we’re doing it.” The survey concluded that these organizations were getting more out of the measurements they were able to make with KPIs than they were investing in them. So it was a win of sorts.
Then there are the companies that really take advantage of the power that new technologies bring to KPIs. These management teams were comprehensively aligning KPIs with goals throughout their business. As Schrage describes their attitude: “It’s not just we have a KPI here, we have a KPI there, and we’re firing on all cylinders. All the KPIs we have, the strategic and the functional KPIs, the KPIs for the business unit, the KPIs for the enterprise, they’re aligned. There’s coherence. There’s congruence. There’s a theme.”
Just as importantly — maybe even more so — is that KPIs for them aren’t just about keeping records. “People share. People use the KPIs to coordinate. People use the KPIs to collaborate. Indeed, there are shared KPIs to facilitate and encourage collaboration between business units, between functional silos, between people, et cetera.”
Putting KPIs to work
Of companies that aren’t stepping up and revising their KPIs to take advantage of all of the current ways in which they can be used, Schrage asks, “Who the heck are you kidding? Who are you kidding? Well, apparently there are a lot of organizations that are kidding themselves. The measurement leaders are not.”