KEY PERFORMANCE INDICATORS (KPIS): DEFINE AND ACT

Transcription

1 KEY PERFORMANCE INDICATORS (KPIS): DEFINE AND ACT Integrating KPIs into your company s strategy By Jacques Warren WHITE PAPER

2 ABOUT JACQUES WARREN Jacques Warren has been working in online marketing for 18 years, focusing entirely on digital analytics and online marketing valuation for the last 12. In early 2007, he launched WAO/MARKETING, changing its name to KWANTYX in June He has advised a hundred organisations on their web investments in several industries in both private and public sectors. His online marketing philosophy is one obsessed with profitability. According to Jacques, the web either contributes to a business bottom line, or is a waste of resources. He is committed to helping KWANTYX s clients dramatically improve their online investments by bringing top people to projects. 2

3 TABLE OF CONTENTS ABOUT JACQUES WARREN 2 INTRODUCTION 4 DEFINING KPIS 5 - MAIN CHARACTERISTICS 6 ESTABLISHING KPIS 7 - LAUNCH THE DISCUSSION 8 - FORMALISE AND DOCUMENT -SHARE THE RESULTS 9 USING KPIS 10 - MEASUREMENTS AND OPTIMISATION 11 3

4 INTRODUCTION The widespread use of web analytics over the last few years shows us that measuring the performance of digital investments has become a general trend. Veterans in the field no longer need to convince company leaders of the importance of analytics. All large companies or companies of any size, for that matter use one or several different tools to analyse their online activity. However, not all companies put things in the proper perspective. This requires first establishing the most important areas to analyse in order to truly measure the success of online activity. Ideally, this step should happen before using any web analytics tool. We call these important measurements Key Performance Indicators, or KPIs. Without KPIs, your company will more or less be winging it. 4

5 DEFINING KPIS A KPI is a measurement that evaluates how well a company is executing its strategic vision. You might be expecting the author to define the main concept straight away. But this is a risky idea and more complex than you might think, as the definition of a KPI varies greatly among the abundant literature available on this topic. As consultants, we generally prefer a more concrete, let s say operational approach, to the different concepts; KPIs should be practical tools rather than rhetorical ones. With that little disclaimer out of the way, let s nonetheless put forth a definition: A KPI is a measurement that evaluates how well a company is executing its strategic vision, meaning how the company s interactive 1 strategy is integrated into the group strategy as a whole. First and foremost, it is important that everyone agrees on what this strategic measurement really represents, and how its variations are interpreted. A KPI, or group of KPIs to be more exact (since a KPI rarely exists alone), offers a type of common language which can be used to express the effectiveness of web projects and their potential for success. This is a fundamental characteristic of KPIs; without this universal understanding of KPIs purpose, they would quickly become a source of chaos rather than focused action. 1 We use the term interactive to cover all the different ways in which the web is present nowadays: websites, social networks, mobile sites and apps, etc. We also use the term web in the same way. 5

6 MAIN CHARACTERISTICS KPIs should: Be aligned with your company s strategy It was just mentioned above, and we re underlining it here if there is no clear link between a KPI and a company s business objectives, then that KPI is not a KPI. The indicator may well be an operational or secondary metric, but it is not a key performance indicator. When asked, What s the performance of our company s digital activities like?, your response should be based on three to five key figures. Be easy to understand Though this may be a very obvious point, it tends to be forgotten. Just imagine the different productivity problems that could result from a poor understanding of the indicators. If the KPIs are used to communicate, then everyone involved needs to agree on what they are used for and what they mean. Allow for action Obviously, there is no point in trying to use KPIs to measure something that cannot be influenced, even indirectly. It is absolutely necessary to know how KPI evolution can be influenced to allow for action. Be contextual Your KPIs should help facilitate the creation of targets to be reached, as well as lower thresholds these are both part of the continuous optimisation process of interactive marketing. We recommend that at the start of each year, companies clearly define their growth or decrease objectives, depending on each indicator used. In doing so, your KPIs will help you determine how your marketing activities are contributing to achieving your objectives all year long. We recommend that the term KPI be reserved and used for only the most important metrics of your web investments. A high number of indicators (more than 15, for example) would demonstrate a lack of clarity at the most strategic level. When asked, What s the performance of our company s digital activities like?, your response should be based on three to five key figures. 6

7 ESTABLISHING KPIS Our involvement in several different KPI definition projects for some of the largest companies across diverse industries has allowed us to establish the following rules of thumb: By including all managers impacted in your KPI project, you ll reach a consensus more quickly and easily. A KPI project involves everyone By including all of the managers who are closely impacted by your company s online marketing, as well as the people they rely on, you ll likely reach a consensus more quickly and easily. External help is a major advantage, but what really matters is that the process is driven from within the company. A general consensus is key This rule is the logical follow-up to the previous rule. Participation in the KPI definition process should result in a shared understanding of the importance, meaning, desired variations and the responsibility of each of the indicators. Without these guidelines in place, any negative results may be challenged. This harks back to larger overarching questions of company culture, which are too complex to dive into here. But let s just say that any efforts to implement analysis and performance measurement activities will depend greatly on how measurement is perceived within your company. Is it seen as repressive? Or as a learning tool? There is no one universal solution Well, yes, of course, we could certainly say that similar businesses measure things in a similar way. However, we must not think that we can get around this exercise of establishing KPIs, as these KPIs must perfectly reflect each company s particular strategic vision. 7

8 LAUNCH THE DISCUSSION There is a lot of groundwork to be done, which consists of clearly documenting each indicator and the method used to calculate it A simple way of encouraging reflection and helping identify KPIs is to ask the following question: If we asked management to triple our online budget, what figures would we use to justify our request? Straight away, you might imagine that you probably won t be talking about visits or time spent on site, and not even conversion rates! This simple question is a great one. It forces stakeholders to immediately position the web as part of their company s strategic plan. The hypothetical question stated above helps teams think about and define their measurements from a purely business point of view, not with web analytics jargon. From the outset, these business challenges take precedence over the different concepts and technologies used. These technologies are subject to measurement needs, rather than measurement needs being subject to tool capabilities. FORMALISE AND DOCUMENT A KPI project should be seen as a formal exercise. There is a lot of groundwork to be done, which consists of clearly documenting each indicator with the method used to calculate it, where the indicator comes from, the data format used, and which metrics have the most influence on it. This phase is neglected too often, despite its high importance. It ensures the permanence of your analytic framework, in terms of both longevity and consistent interpretation of results. Such an exercise will also help companies choose their data processing technology and tools, as it will help them base their choice on real business needs, and not on tools enticing features. 8

9 SHARE THE RESULTS We believe KPI definition is directly linked with how your results are formalised (how they re shared, the format used, etc.). We re not partial to one type of report over another, whether it s largely text-based or visual, as is the case with today s modern dashboards. What matters is that the main message (a clear explanation of what has happened and what it will impact, what may happen in the future, and predictions made clearer thanks to KPI objectives) is easily understood by your company s decision-makers. Choices relating to reports and formats should, above all, respect this principle of clarity. 9

10 USING KPIS This diagram illustrates how certain metrics influence a KPI: METRICS VISITS VISITS TO THE CRITICAL PAGES OPERATIONAL KPIS TRANSACTIONS CONVERSION RATE SALES PER ORDER TOTAL SALES KPI PERCENTAGE INCREASE OF ONLINE SALES STRATEGY AND ACTIONS We have explored the very strong link between KPIs and a company s strategic vision for its digital activity. As KPIs are used to quantify how well a company s strategy has been executed, we could almost say that KPIs are a key component of that strategy itself. All that remains to be known is how they can be influenced, as mentioned earlier. We ll repeat: Each KPI should be subject to a growth objective (or a decrease objective, according to the KPI s nature); each indicator also needs to be assigned to one or several managers who are responsible for the realising these objectives. It is only natural that we have a very clear idea of how to influence KPIs through concrete actions. A well-defined KPI will go through all of the variables which have a direct impact on each indicator. Operational KPIs are referred to as drivers, or quite simply, metrics. These measurements group together metrics which are found in in web analytics reports. For example, if one of the KPIs is to increase the percentage of online sales, an example of a metric which would have a direct influence on online sales would be the conversion rate. In trying to increase the conversion rate, a marketer will indirectly influence the KPI in the way he or she wants to. Average order sales is another example of a metric which could have a direct influence on the same KPI, and which can be found in the reports of applications. It is also possible to make a list of the different metrics which act upon the same KPI. 10

11 MEASUREMENTS AND OPTIMISATION Thankfully, there tends to be more than one way in which performance indicators can be influenced. The efforts invested in any KPI project represent the basis of the measurements used to analyse the performance of any online investments. KPIs are only relevant if they can show us the path to success, a path with many different actions with the aim of trying to improve a sustained effort of optimisation. Optimisation is defined as the continual improvement of results which are obtained by different activities such as those which are evaluated in the framework of a strict measuring process. We believe that there is a slight risk in trying to chase small percentage points without having any performance indicators as a reference. It will become necessary to transfer all optimisation efforts and channel them into KPIs, which are essential reference points. Experience has also taught us that from a certain stage, the margin for improvement is inevitably reduced: marginal profit gain is close to zero for a given type of intervention. Web analysts may lose their ability to intervene on an operational indicator, which in turn will lose its influence on the KPI. Thankfully, there tends to be more than one way in which performance indicators can be influenced; each indicator is part of a real work plan. Nonetheless, there is a limit to the extent that each optimisation point can be improved. We have even seen cases of a cancellation effect, where one action s improved efficiency seems to occur at the expense of another. Luckily, the limits of web analytics can always be surpassed with marketing sense and imagination. 11

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