Developing KPIs for the MBR (Part 2)

KPIs are central to the business review program since they provide a way to reason about the success or failure of an initiative. Core to the success of a Monthly Business Review (MBR) program is thoughtful KPI definition, measurement and presentation. Today I will outline the two most important elements to consider when developing KPIs for the MBR:

  1. Alignment to company objectives
  2. Engendering a culture of accountability

Align to company objectives

The most important part of creating KPIs for the MBR is to ensure there is a compelling story connecting a KPI to a company objective. Categorize KPIs as high level outputs versus low level inputs. Then after creating all the KPIs, take a step back and assess if, taken together, the KPIs accurately reflect what’s most important to the business.

High level versus Low level KPIs

In order to align KPIs to company objectives, you must balance the tension between KPIs that are too high level for any team to claim ownership, and too low level to be connected to company objectives. For example, Average Order Value (AOV) is a high level KPI that may have a strong influence on Monthly Revenue, a company objective. But since many teams influence AOV, it is hard to quantify the impact a given team can have. Without a strong story around how teams impact KPIs, it’s easier to deflect responsibility and harder to hold people accountable.

Note that all organizations have some metrics, like Monthly Revenue, that are obviously important but not particularly actionable given how high level they are. I like to display these on a cover slide so folks can see the most important company objectives. However, I set the expectation that we won’t talk about these metrics in detail; rather we’ll move quickly to more actionable KPIs that follow.

Strategies to balance the high level / low level tension include:

  1. Select KPIs that are inputs to high level KPIs. For example, reducing the time it takes to check out could be an input to the number of checkouts, which could itself be an input to total checkout revenue. If “Time to checkout” is an input KPI, the team that owns the checkout experience can focus on improving that experience. Improvement here could be tied to improvement in total checkout revenue (a high level, output KPI). If the lower level KPIs remain too high level to assign clears owners, continue selecting lower level inputs until you can assign individual owners. 
  2. Develop heuristics around how much influence different teams or different initiatives have on AOV (or lower level proxies). For example, you can run experiments to understand the impact of offering discounts for first time customers, on “AOV for first time checkouts”. This is a helpful proxy for total AOV and it’s largely in the control of the team that owns discounts.

These strategies help develop a sense of which team should own which KPI, what impact their initiatives may have, and how to allocate resources between projects. 

But watch out – as you develop more KPIs there is a tendency to diffuse responsibility across more people. It’s critical that each KPI, including the higher level KPIs, have a single owner. 

Focus on what’s most important

To make the MBR meaningful, each meeting should focus on the most important KPIs at that meeting, which will vary over time. As your business changes, so will the importance of different KPIs. Consider the seasonality of your business, impending product launches or pivots, or… global pandemics.

When done poorly,  folks walk away from an MBR meeting with the feeling that the KPIs reviewed aren’t reflective of how their teams are feeling “on the ground.” This fosters dissatisfaction and skepticism of the MBR program.

As you break up KPIs into inputs and outputs, the number of KPIs will increase. This is okay initially since it may take time to identify which are most useful. However, after a few iterations of the MBR, you will arrive at a subset of KPIs that are core to a given meeting. It helps to have a broad set of familiar KPIs, and at a given MBR meeting, select those that are most important or worst performing and in need of triage. Note that KPIs will change over time as the business changes; the goal is to get a set of indicators, whose definitions are relatively stable in the long run, that can help the business progress against company goals. 

Culture of accountability

For the MBR to be effective, folks need to buy in and be held accountable for their outcomes with respect to KPIs. Three methods to help here are getting buy-in from leadership, forming expectations ahead of time, and installing a feedback loop.

Ensure senior leadership is fully on-board 

For the MBR to be successful, senior leadership must be fully on-board. This means that they are held accountable to the outcomes of the KPIs under review. This ensures they will empower and unblock their team to prioritize this work, and actively participate in the MBR meeting. Leadership’s “skin in the game” legitimizes the MBR program in a way that other manage-by-KPI systems may not.

In order to get them on-board, it is critical to have a member of leadership sponsor the program — be it yourself (if you are an executive) or an executive who has a similar interest in data-driven accountability. If that executive is not in your reporting line, be sure that yours is on board as well. Sponsorship includes getting the CEO to completely buy in to holding the executive team accountable to their KPIs . The MBR will be successful if the sponsor and Data owner align on the structure of the program and execution. The critical points here are that (1) budget owners are involved, (2) a senior leader sponsors the program, (3) an analytical leader project manages, (4) everyone involved agrees to the MBR structure and expectations.

Include your hypothesis

To truly be data-driven and ensure proper accountability, folks need to establish their expectations ahead of presenting updated KPIs. By setting expectations ahead of time, we can help take excuses for falling short of a goal – noisy data or other interferences – off the table. Conversely, it becomes easier and more clear when someone deserves credit for KPI improvements. 

For example, if Sales believes purchasing third party data on potential clients can increase the number of net new conversations, then ahead of purchasing the data, they should make a claim such as “If we invest $10K in this data asset, we expect to gain 10 net new conversations over the next 2 months”. If this is a worthy investment, then the MBR should track new net conversations and see how they did over the 2 month period. Don’t settle for vague statements such as “we expect to increase net new conversations” that, for example, have no time bound or quantity associated with them. 

Creating feedback loops

Requiring business stakeholders to set expectations ahead of time also helps in articulating action plans. For example, if Sales are behind the target, then the Sales lead should explain what they intend to do about it ahead of the next MBR. This feedback loop is critical to the success of the business review program.

The MBR is most successful when folks leave the meeting with a set of action items they prioritize to follow up on ahead of the next meeting. The action items should be tied to KPIs that they’re trying to impact. Tying KPI output from one meeting to the next ensures continuity and helps to tell the story of the business. When KPIs are reviewed anew, or their definitions change frequently, there is a loss of accountability and lack of trust in the KPIs. 

By getting senior leadership to focus on KPI improvement and ensure expectations are set ahead of time, stakeholders have the space they need to enable them to improve their metrics.

KPIs: The focal point for MBRs

The MBR is a transformational tool for organizations striving to be more data-driven. By connecting business outcomes to predefined KPIs, folks can more transparently and effectively manage the business.

KPIs are the mechanism by which teams across the organization can reason about the success or failure of important company initiatives. KPIs should be developed thoughtfully, in alignment with company objectives and with mechanisms to ensure accountability.  Once this is completed, the next task is to facilitate the MBR meeting — the topic of the next post. 

What do y’all think are the most important parts of KPI development? Join our Slack community and let me know!

Ilan is the Head of Data at TrialSpark where he’s helping to modernize the clinical drug trial process in order to bring treatments to patients who need them, faster. He loves thinking about numbers, musing philosophically and mapping optimal bike routes around the city. When he isn’t over analyzing, he’s running around Prospect Park with his boys.

Site Footer