For many organizations, key performance indicators are “key” in name only, tracked primarily to meet compliance regulations or provide a retrospective analysis. What’s needed are smarter KPIs, said Michael Schrage, a visiting research fellow at the MIT Initiative on the Digital Economy.
As Schrage wrote in a recent article and accompanying report in Sloan Management Review, advances in machine learning and predictive algorithms can turn KPIs into prescriptive indicators that guide strategy, rather than metrics that simply help managers keep score.
When applied to digital transformation efforts, KPIs can drive business strategy and provide a distinct competitive advantage, Schrage said. Because algorithms can “learn” from previous results to improve future performance, smart KPIs will only get smarter with time and further accelerate digital transformation. That’s a data-driven virtuous cycle all digital leaderships should seek, Schrage said.
Reaching that point requires bolder levels of executive management and insight. Digitally native companies such as Alibaba, Amazon, and Slack have enjoyed clear advantages, as data has always driven their success, Schrage noted. But established firms ranging from Adidas America to JetBlue to Starbucks also increasingly value data as a strategic resource, he said.
“Executives in these types of organizations use KPIs to lead the enterprise,…