How to define digital KPIs
Gartner’s Proctor says that enterprise CIOs seeking to craft digital KPIs should begin by targeting two broad categories. The first set of KPIs should assess the company's progress in digitizing its current business model by measuring goals in sales, marketing, operations, supply chain, products/services and customer service. Several restaurants, including TGI Fridays and Wingstop, for example, are using chatbots to help digitize order taking and transactions. Starbucks, Target and several other consumer-facing organizations now let consumers pay for goods from their phones instead of cashiers. CIOs should evaluate such digital operations using metrics that assess adoption rates and business impact relative to traditional operating modes.
A second set of KPIs should assess new revenue sources generated from new digital business models. These KPIs should represent growth, revenue, market share and margin metrics that are differentiated from physical assets. Proctor & Gamble acquired Dollar Shave Club, giving it a platform from which to sell razors online. Caterpillar acquired Yard Club to rent heavy machines through an online marketplace. Cleveland Clinic sells algorithms for analyzing cardiology and oncology through Apervita's online marketplace. These new sources of revenue based on digital models should be evaluated separate from analog revenue streams to assess how they impact the bottom line.
Digital KPI best practices
While many companies are undertaking digital transformations, only about half of CEOs Gartner has surveyed have KPIs to measure digital success, Proctor says. He recommends several steps CIOs can take to measure the value of their digital business:
- Work with senior executives to quantify the extent to which their areas would benefit from digitalization. A CIO might work with a COO to define how much of the company’s manufacturing operations should be digitalized and what benefits to expect.
- Set KPIs and goals that lay out the digital business journey and sharpen expected business outcomes. For example, Proctor recommends that healthcare CIOs shift from talking about connected healthcare as a vision to proposing the potential percentage of patient "visits" that will employ telemedicine. This quantifies a clear goal. Then describe the expected benefits of achieving this goal.
- Measure the progress of your digital journey and the business value it creates. Here, some KPIs will be "transitional," while others will become permanent metrics for business performance as transformation is achieved and digital business becomes standard operating procedure. For example, an enterprise that builds a digital ecosystem may permanently add ecosystem metrics to its ongoing business performance KPIs. Good metrics should influence C-suite decisions such as budget allocations, business process improvements and culture changes.
- Use KPIs to support specific outcome expectations, such as, "By reaching our 2020 goal of digitizing ABC, we will benefit from an X increase in these business and financial metrics."
- Don't overdigitize your business. Shoehorning too many customer interactions via digital channels can create negative impacts. For example, expecting all sales to go through a digital sales channel will upset some customers and provide very little chance for high-touch engagement. An enterprise should determine the "balance point" at which the amount of digitization is ideal for customers and employees. Each KPI should have a balance point that counters the risks that come with going all digital.
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