Why KPIs can not come from the bottom up. Management should always participate to the KPI creation

Vincent Kermorgant who works for Forum Nokia and I recently had some conversations about KPI’s…. As you do :). He came up with a great analogy to describe what a big business needs to do to build KPI’s which we’re going to develop further. I’ll at least write an article on the subject for our next newsletter, but until then here is Vincent’s rough draft;

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Driving a web business, is like driving a car since…

1) You have a target to reach : destination
2) You have a benchmark : the starting point and the starting time
3) You usually have more than one way to reach destination
4) The fuel is your main resource
5) You have incentives (arrive in time, not get arrested for overspeeding, be fuel efficient)

How do you achieve all these goals ?

Evaluating the allowed speed on the road and knowing the trip distance will give you an estimate when to start the trip

Keeping an eye on the speedometer will make sure your speed is within authorized limits

Monitoring the fuel gauge will tell you when a stop at the gas station is wise

In other words, your success will depend in 2 families of factors :

Strategical decisions : correctly planning the departure time, choosing the right roads

Good execution : drive to the limit and not run out gas by monitoring Key Performance Indicators (KPIs)

Wait a minute, what are these “KPIs” ?

A good KPI is an indicator that helps you understand how your plan is executing and which should give you indications where and how to act if things go off track.

Example : You are on a highway limited to 120 km/h and your KPI (the
speedometer) shows that you are going 140 km/h. You act by releasing a bit the gas pedal and the KPI comes nicely down to 120 km/h – confirming that the action got the desired effect

Example : you see on your fuel gauge that the tank is reaching the red zone and you see a sign on the road telling you that the next station is 2 kms away. Most likely you will stop, buy some gas, start again with fuel gauge showing fuel tank : you wisely monitored the KPI (the fuel gauge) to allocate more resources before the shortage occured.

Well, all of this seems trivial doesn’t it? And what does web analytics have to do with all of this?

In most cases, a part of the companies efforts to reach their goals uses a website. In that respect, the web presence is the car. In order to drive it successfully, you’ll need to monitor the KPIs provided by the Web analytics.

Building KPIs

Keeping with the car analogy : the car is, in fact, ignorant of the speed it is moving. Instead, most modern cars rely on the ABS sensors to provide the speed at which the wheels are turning. The sensor reports a number of impulses per second. The number of impulses per second is converted by the car’s computer into number of wheel turns, which are later converted into kilometers per hour.

You are still following me?

Now why do we need these conversions? Why not report the number of impulsions via a digital display to the driver?

Simply because the driver will not be able to make sense of the figure.
The speed limits are displayed in km/h, not in Impulses per second.

Back to the web analytics : most (if not all) web analytics tools provides the raw data, the impulses per second. Unless this data is “digested” into KPIs, it is mostly useless

Let’s see how is really calculated the speed of the vehicule :

The analytic system (the sensor) provides a number of 500 impulses per second Which gives 500 * 3600 = 1 800 000 impulses per hour.
25 impulses equals one complete wheel revolution, so the turns per hour is 1 800 000/25 = 72000 wheel turns per hour If the wheel developped size is 1.5m, the speed of the vehicule is : (72 000*1.5)/1000 = 108 km/h

Looking back at this example :

Turning the raw value of 500 impulses/second into the KPI : 108 km/h required few things:

a) the car manufacturer knew that the driver is interested in km/h, not in impulses/s
b) the number of impulses needed to make one wheel turn and the size of the developed wheel were known but are not reported

1) KPIs can not come from the bottom up. Management should always participate to the KPI creation

2) KPIs are usually a combination of on-line and off line data. It is the combination that make them meaningfull

3) It is easier to manage a few KPIs than be flooded by them

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I agree. You?

Steve is a well known analytics specialist, author and speaker. A pioneer since 2002, he established one of the first European web analytics consultancies (Aboavista), later acquired by Satama (now Trainers’ House) in 2006. In 2008 he wrote his first book Cult Of Analytics published on May 14th 2009. He currently serves as CEO at Quru and has presented and keynoted web analytics topics across Europe. These include The Internet Marketing Conference (Stockholm), The Search Engine strategies (Stockholm), IIH (Copenhagen), the IAB Finland (Helsinki), Media Plaza (Amsterdam), Design For Conversion (Amsterdam) The eMetrics Summit (London, Munich, Stockholm), Divia (Helsinki) in addition to sitting on dozens of panels.

Posted in General, Metrics/measurement, Web Analytics
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  1. […] Ealier on, with the car example, I introduced the concept of KPIs and why they are so vital for the management. […]

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