What: Digital transformation is often seen as an end, when it is a mean. This misconception leads to not making the most of KPIs, which can contribute to the changes in the company.

Why it is important: KPIs can be transformative and MITSloan proposes an approach that contribute to identify, address and improve the reservoirs for growth.

Digital transformation is a mean, not an end. Considering that the digital transformation is a goal can be a source of strategic mistake and can lead to picking up the wrong KPIs, misleading the organisation as a whole. In addition, many legacy companies see KPIs are reporting and accounting mechanisms, and miss their potential contribution to the strategic changes, by helping the decision-making process.

MIT Sloan argues that KPIs should lead, not track, digital initiatives. Top management should define and communicate both the key performance that is required to execute its strategic plan and the digital capabilities that will enable that performance. For instance, dramatically upgrading technology infrastructure only ends in doing the same old things, but in the cloud. This is why the transformation opportunity lies in making strategic metrics both individually and collectively visible and valuable, with a strong Return on KPIs.

For example, a financial services company identified agility (ability to rapidly react and respond to customers’ requests) as a KPI. Legacy systems did not provide any additional value, so the company dissected the processes and identify new measures: session time, autofill, customer effort, loan approvement cycle. This led into generating new questions: for instance, could autofill be used to increase customers’ loyalty by reducing their effort? These new metrics did not just monitor digital agility but informed possible investments for agile improvements. Another example is the Customer Lifetime Value.

MITSloan identifies 4 components of a leadership framework for KPI-driven digital transformation:

• Create a strategic KPI portfolio, with a clear strategic vision, with tangible goals, each of them coming with key inputs and actions, methods for measurements and priority of such measurements. For instance, a global hardware company identified NPS, number of lines of business, number of general ledgers as 3 important KPIs. A financial services company idenfied the ratio of transactional to analytical operations, the percentage of data storage and distribution processes leveraging cloud-based platforms, and the percentage of roles offering flexible work schedules. MITSloan mentions that there is not an ideal number of KPIs, but 5 to 9 are consistent.
• Commit to data as a digital asset. Defining the key data points that individually and collectively make up the KPI portfolio is the first and hardest task. Usually, legacy organisations have bold digital ambitions but inadequate command of their data. This involves strategic investments in making the data more valuable. “Return on data” should be expressed as a necessity at the corporate level and senior directors should be held accountable on this metric.
• Orchestrate data flows to make KPIs shareable, visible and dynamic: usually through a coordination, sequencing and orchestration of the data journey through systems, business units, functions and geographies.
• Commit to continuous KPI improvement: KPIs are waypoints, not endpoints, because digital transformation is a process, not a destination.

Taken together, this framework’s four components enable a virtuous cycle: better data and analytics improve and enhance KPIs, better data orchestration encourages the discover of and access to new data sources, seeing KPIs as dynamically evolving encourages leaders to look for new KPIs to track new kinds of value the company can create, and ongoing improvement  and growth is baked in.

How the wrong KPIs doom digital transformation