Unlocking Key Performance Indicators
Posted by Jeffrey Henning on Tue, Sep 15, 2009
In last night’s keynote at the
Gartner CRM conference,
Analytics-to-Action: Key Analyses for Customer-Centric Decisions, research director Gareth Herschel presented a wide-ranging discussion of using analysis to reach conclusions centered on the customer. A number of his points focused on selecting KPIs (Key Performance Indicators).
Gareth related a conversation with a client, after he had asked her about her KPIs. Turns out she had 137 KPIs for her department. “Well, that makes for an interesting definition of K!” he said. As a practical matter, she concentrated on just 7 of the KPIs. Unfortunately, her boss had a different 7 that were important to him. Moral: you have to measure what matters.
Gareth’s advice is that no manager have more than 5 to 9 key metrics. Since we figuratively talk about “keeping balls in the air”, he used the analogy of juggling: world records for juggling a few items measure the feat in hours, while world records for juggling 10 or more items measure the record in catches. Physically and figuratively, we can’t juggle too many items.
Of course, if you are only going to concentrate on a few items, you’d better select them with care. Too often items are tracked because they can be, not because they should be. As Gareth said, “Marketing never saw a piece of data they didn’t want.” Worse, most KPIs are at too simplistic a level and fail to focus on LTV (Life-Time Value).
Customer churn by itself is an example of a bad performance indicator: “80% of value destruction occurs from 20% of your customers; you want to fire those customers,” Gareth said. Telecommunications firms and utilities especially suffer from this. Instead of just looking at minimizing churn rate, for instance, ask “Who’s at risk of churning? Do we care about them? Why will they churn? What should we do to retain them? Would we succeed? Are they likely to be at risk of churning again?” Segment customers by LTV and current value and seek to minimize the churn rate of those with the highest current and lifetime values.
Remember, you can have hundreds of performance indicators but you have to focus on the key indicators to achieve customer-centered decisions.