For a digital project to make an impact, it has to move the needle. But do you know how your business keeps score?
Traditionally, success is measured through revenue, profitability, return on equity or EBITDA– but these are lagging indicators and not directly controllable. Many boards and CEOs use specific KPIs that more closely measure the impact of individual strategic initiatives. Ultimately, these impact the big metrics as well but provide more visibility into what areas of the business are producing the changes– to allow for more informed decision making.
Depending on your industry, different metrics will be most relevant to your business– for retail: these could be sales per square foot, for oil and gas: exploration success rates, for software: lead conversion rates, for banking: customer retention rates, or for healthcare: % claims rejected due to coding errors.
- Identify the leading indicators that determine success in your industry.
- Know where your company stands on these metrics in relation to your industry’s leaders. ? and THAT is the performance gap your digital project should help fill.
- Always start with the performance gap, not with the technology.
Unfortunately, many digital teams resort only to efficiency metrics like hours saved or reduced staffing needs to justify projects. It is shortsighted. Especially if the board does not really focus on those metrics.
I recall trying to convince a pharmaceutical company early in my career to reducing finance and procurement costs and all the board and C-suite cared about was ways to increase R&D pipeline. Similarly, in a high growth technology business, one project targeting customer renewals got priority over another aimed at reducing operating costs — even though the estimated impact on profitability was the same.
Any technology project should focus on impacting the top 3-4 KPIs that are the priorities for the board. Otherwise, the project will become a distraction and lack executive support. We need not only to move the needle but to move the right needles for the business– the ones that align with the board’s strategy.
So here are my 5 steps for moving the needle
- Identify 1-2 strategic KPIs where the digital project will make the most impact
- Take a baseline measurement of those KPIs to understand the current state.
- Determine how big the performance gap is between you and best in class in the industry.
- Set that as the art of the possible for digital and set a realistic short term goal.
- Then focus on moving that one needle.