I’ve heard this question asked a thousand times. The answer, of course, varies.
As explored in “Influencer,” metrics guide our team’s focus. It promotes specific actions. So to effect change, it’s critical to identify relevant metrics.
For most industries, there exist basic measurements that all players use for comparison. For example, the airline industry has Revenue Passenger Mile, the hotel industry has Revenue per Available Room, and any industry that sells products tracks Inventory Turnover. These metrics, while relevant to assess a company’s performance against competitors or an industry benchmark, may not be any useful in assessing a specific team’s performance.
The way we go about measuring the performance of our engineering, product, and marketing teams may vary from company to company, depending on the unique challenges faced.
At startups, the challenge of identifying relevant KPIs is intensified by rapidly shifting goals. Sometimes, a KPI is no longer relevant after just a few weeks. At our startup, we once changed the sales and implementation process three times over the course of a quarter, which necessitated three different sets of KPIs to be designed and adopted over the same amount of time. Chaotic, right?
So how do we go about defining a set of KPIs that focuses on long-term success, adapts to our changing team needs, and accurately reflects our progress? I’m going to argue that each team needs three sets of metrics:
- Strategic KPIs reflecting the team’s long-term mission, which shouldn’t change often;
- Tactical KPIs guiding the team’s immediate actions; and
- Individual KPIs guiding individual team members.
Let’s explore these three different types of team KPIs in more detail.
What pain does my team solve?
Ultimately, our team exists to solve a pain. The strategic KPI(s) that guides our team should therefore be a measure of how well we are solving that pain. So before thinking about measures, let’s first get an understanding of the problem our team tackles.
As an exercise, let’s assume that we lead a customer success team at a B2C retail company for a moment:
- What pain does my customer success team solve? Bad customer experience.
- How do bad customer experiences impact the company? Customers will not come back, and could also defame our brand on social media. In turn, they drive down future revenue.
- What are indicators of bad experiences? We can learn about a bad experience when someone files a complaint, provides negative feedback, responds negatively to a survey, or speaks negatively of our product on social media.
- What are indicators of repeat business? The lifetime revenue of our customers, the ratio of repeat customers, and the average time between purchases.
- Can the metrics be used for comparison? Are some metrics parent to others, and can they be normalized?
- All data points on bad experiences can feed into an overall count of negative experiences. We can further normalize by the count of active/purchasing customers over a time period, accounting only for customers that had the opportunity to have a negative experience. A relevant KPI could thus be the average count of negative experience per active customer by month.
- The ratio of repeat customers and average time between purchases will both affect how the lifetime revenue of our customers grows. We can further cohort or group customers by their first purchase date to see if newer customers respond differently to our tactics. We can also take snapshots of customers’ lifetime revenue at different instances in their lifetime with us, to fairly compare new and old customers. For example, we could evaluate the lifetime revenue of customers that made a first purchase in the month of January, and their lifetime revenue 180 days after, and 365 days after…
As exposed above, we can clearly identify our team’s strategic KPIs by evaluating the context of the pain solved by our team, and by identifying parent metrics that others feed into. In this case, the customer success team’s strategic KPIs can track:
- The lifetime revenue growth of its customers by first purchase month cohorts; and
- The average count of negative experience per monthly active user.
How are we solving this pain?
To solve the pain that our team is responsible for, our team is likely to adopt different tactics over time. Each of these tactics also need to be measured and evaluated, leading to the need for Tactical KPI(s). Let’s again assume the leadership of our customer success team and explore some questions that can help us identify our tactical KPIs:
- What is our team doing to boost customer lifetime revenue? We’re sending email newsletters to recommend specific products to a target audience.
- How can we measure the newsletter’s success? By evaluating the number of repeat purchases that originate from our newsletter.
- What is our team doing to reduce bad experiences? Solving problems to avoid a recurrence of the same problem with other users (i.e. fixing product issues and improving QA process)
- How can we measure the success of our QA process? By counting the number of unique problems reported by customers for each product sold.
From the questions above, it’s clear that the customer success team’s tactical KPIs should track:
- The ratio of repeat purchases made by customers that clicked on the newsletter; and
- The average number of unique problems reported per product sold.
It’s important to note that a team should be able affect its tactical KPIs, and avoid metrics they can’t impact. In addition, as a team’s activities and methods of solving its pain evolve, the tactical KPIs should change. As a simple example, if our customer success team no longer send newsletters, and has moved on to using Facebook to interact with our customers, then we’ll need to track the ratio of purchases originating from Facebook.
How is each individual solving this pain?
Beyond team level metrics, there are also individual level metrics that assess how each team member is doing relative to another in helping to affect our strategic and tactical KPIs. The exact measure will depend on the team member’s unique responsibilities, and expectations that we have of them.
If two team members share the same responsibilities, the same KPI should be used for both of them. For example, sales agents that do the same thing should share KPI(s) to help compare their performance (e.g. Ratio of conversion from A to B).
A couple questions that can help us identify relevant individual KPIs include:
- How does the team member contribute toward the tactical KPIs?
- Are there unique expectations and improvement areas that we agreed upon with the team member that needs to be tracked?
Do individual KPIs have to relate to Strategic and Tactical KPIs?
Individual team members should never compare themselves and gauge their performance on anything else but what matters to the team and the company. Everything else is a distraction. If team members start comparing each other’s professional growth in terms of the quality and price of computers / desks they have, the clothes they wear, or their business card designs, then our company is doomed.
Does this mean that we shouldn’t seek to have fun at work? Of course not. Realize however that the goal of social events, company sports teams, and non-work related contests (e.g. Christmas prizes, best halloween costume, etc.) is to make the workplace and our culture more appealing to employees. Our hope is that people are more motivated to focus on their team KPIs if they enjoy working here. So it’s all related 🙂
What if another team shares my KPI?
Great! Sharing KPIs is great news, because 1) it shows that our organization is capable of strategic alignment across teams, and 2) we get to work with people that think differently than us!
There are a couple considerations to account for when sharing KPIs with other teams:
- Ensure that each team’s responsibilities are clearly defined; and
- Have someone from each team manage the collaboration.
It’s obvious that the first point ensures everyone knows what they’re supposed to do, and avoid stepping on each others’ toes.
It’s the second point that some organizations fail to foresee a need for. May it be a project or program, having a specific individual manage the collaboration ensures that there’s an advocate on each team that will coordinate work, provide detailed updates, and remind the rest of the team of this KPI’s priority. Without collaboration managers, shared KPIs won’t have the same priority across teams. This can result in missed expectations and conflict if one team tried really hard, while the other slacked.
Do I trust the data?
Beyond designing the relevant KPIs to effect the desired change, trust in the data is critical for team members to take the numbers seriously.
Luckily, there’s a simple way to verify whether our metric is accurate: Get a second opinion.
If we’re expecting something different, it means that we’re receiving redundant information from a different source that reveals a discrepancy. We must therefore compare results from the two sources, understand why there’s a discrepancy (definition, data, etc.) and either leave the two as is and acknowledge the difference, or change one of the two definitions to reconcile.
Where can we get a second opinion? If we’re asking this question, it must be that there’s no easy access to redundant information from a different source.
For example, while we may be able to compare revenue from our payment processing system against the data we see from our operational database, it’s not as easy to find a second metric to compare employee satisfaction scores from a recent survey. So what do we do? We walk around the office, observe people, listen to water-cooler conversations, and have lunch with colleagues.
I can’t overstate the importance of simply gathering qualitative data. Managers need to dedicate time weekly to observing their team, colleagues, and customers. We can’t be the ones that eat lunch at our desk. It’s incredible how much insight we can gather by simply observing our environment on top of looking at dashboards. I also can’t take credit for this: I was reminded to observe team members by my boss after failing to realize that some individuals were unhappy with their growth path. I didn’t need to wait for the next performance review or the next employee survey to get this insight. I could have simply invited team members for coffee regularly. Andy Grove (former CEO of Intel) is a strong proponent of this tactic as well in High Output Management.
Hope you found this valuable 🙂
Let’s review all data reports we look at weekly and ask ourselves: “Which reports did we skip over or simply glimpsed at?” These reports are often meaningless distractions and should be replaced. Reports need to be actionable, meaningful, and serve as a strategic KPI, tactical KPI, or individual KPI.
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