Constructing Marketing’s Key Performance Indicators (KPIs)

Been listening in on a conversation between Gary Angel and Eric Peterson regarding web analytics KPIs. Eric says:

Key performance indicators should be included or excluded from a hierarchical reporting strategy…based on the likelihood that the indicator will spur some type of action in the organization when the indicator unexpectedly changes…[although] the action the organization would take, when unexpected change occurs, is never precise.”

Gary’s take is more context-oriented:

A report becomes actionable by using KPI’s to provide the business context within which an action can be identified or deemed worth trying. The more relevant context a report provides, the more likely it is to be actionable. KPI’s are the context builders that make up our view of what’s important and what isn’t.”

Although their focus is on Web analytics (I think), their points are relevant to Marketing’s broader quest to define the right set of KPIs. My take: Constructing the “right” set of KPIs is not an either/or decision between actionability and context. CMOs should look at their KPIs as a portfolio of measures, each of which should meet at least one of the following criteria:

    • Explanatory ability. Perhaps closest to Gary’s description of context, does the KPI help explain why what happened happened? (sorry, you may have to read that twice).
    • Predictive ability. Does the KPI enhance the firm’s ability to predict what will happen in the future?
    • Behavior change. Does the act of measuring the KPI incent people to act or behave in a particular way (that management believes is desirable)?

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When evaluating a set of potential KPIs, marketing execs need to put each metric up against these criteria and ask themselves (at least) two questions:

1) Does this metric help us explain, predict, or change behavior? If not, then that metric may not be a good candidate for the KPI list.

2) Is the set of metrics balanced between the criteria? If all of the proposed KPIs are explanatory, then it’s likely that reports will be “rear-mirror” focused, leaving senior execs frustrated that Marketing isn’t looking ahead.

What about metrics that simply describe what happened? I’m not saying that these shouldn’t be measured. But they don’t clear the bar to qualify as a Key Performance Indicator.

This is important because too many marketing dashboards and scorecards are nothing but laundry list of metrics that senior execs often get from finance or within their own LOBs. To be effective, Marketing’s reports have to go beyond the standard metrics and add value to execs understanding of the business (i.e., explain, predict, or change behavior).

Hat tip: Jim Novo

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