Feel as if you’re drowning in data but starving for information? You’re hardly alone; there’s a deluge of information out there, but it’s challenging to make sense of it. CFOs now supplement their typical financial metrics with nonfinancial data about website traffic, operational processes, employee engagement, and even customer retweets to get a clearer picture of corporate performance. But the sheer abundance of information can push finance leaders into uncharted waters. And, to stretch the metaphor, the floodwaters are still rising.
By 2025, IDC predicts the amount of data created in the world will reach 180 zettabytes, up from less than 10 zettabytes in 2015. That’s one sextillion (1021) or, more strictly, 270 bytes. And that data is flowing right into corporate reports. The Adaptive Insights CFO Indicator Q4 2016 report found that 68% of CFOs expect report volumes to increase by 2020.
With information streaming in from all directions, it can be tough to pick just a few metrics to focus on. But organizations that track the right KPIs can identify opportunities before the competition does—and course-correct more quickly when teams get off track. They realize you get what you measure. And whether you are planning an entire business’s financial plan at a corporate level, the financial plans for a single division, or operational plans for a single function or department, KPIs must be relevant.
Some companies select what appear to be relevant metrics and display them in a dashboard for their managers. But are these KPIs what they can measure or what they should measure? How many of them, if any, support achieving the strategy of the executive team? Most executives are reasonably good at formulating their company’s strategy. Their frustration is with their managers falling short of executing the strategy.
KPIs are merely metrics to monitor the progress toward accomplishing the strategic objectives that will achieve the executive team’s strategy. Each KPI should have target levels to monitor variances for the actual versus planned performance of the managers.
Here are three questions that can help you select and track the KPIs that will deliver the biggest boost to your company’s bottom line.
Question 1: What are we missing?
Many KPIs tell the same story but in a different way. And if your metrics are too heavily weighted in one area, you may see a distorted picture of your company’s performance. For instance, if you focus on financial metrics while ignoring “soft” marketing data, you might miss information that could affect your future product pipeline.
To find out what metrics are missing from the mix, talk to teams across the company about their processes and projects intended to execute the executive team’s strategic objectives. Learning more about where they’re putting their time and efforts—and the results they hope to achieve—will help you see whether their work is being adequately reflected in existing reports. If it’s not, look for reliable ways to measure the team’s progress and productivity.
Question 2: Is that really measurable?
Once you identify a high-potential KPI, the next step is to validate whether the data needed to track it is readily available.
Let’s say your company’s HR department wants to track employee productivity. That’s a valuable metric, but your company may not have the tools in place to track it accurately. A recent study by Financial Executives International Canada found that only 10% of senior financial executives said their productivity measurement tools fully meet their company’s needs.
If you cannot measure it, you cannot manage it. If you cannot manage it, you cannot improve it.
If you don’t have access to your ideal data set, see if there’s a related metric that could be more easily measured. For instance, an alternative to tracking employee productivity might be measuring employee engagement by looking at how many employees actively participate in training, volunteer opportunities, etc. A modern, cloud-based solution can help with this.
Question 3: How long will tracking these new metrics take?
According to the CFO Indicator Q4 2016, one-quarter of finance teams already spend up to 30% of their time on reporting alone. So even if data is available, tracking a KPI might not make sense if it adds too much work to the pile.
That said, data centralization and automation can help cut the amount of time the finance team spends gathering and verifying data—which will free up staff to focus on more meaningful analysis.
“We’re constantly looking for ways to automate more of the accounting role so that the staff spends less time on manual data collection and working on spreadsheets and PowerPoint presentations, and more time answering the important questions posed by the numbers,” Neil Williams, CFO of Intuit, told CFO.com.
Accountants need to expand their role from bean counters to bean growers. They need to design performance reporting that aligns the actions, initiatives, and priorities of line managers and employee teams with the executive team’s strategy.
The cornucopia of data out there can make it tempting to measure more KPIs than your team can handle. But asking smart, strategic questions helps ensure the metrics you track will offer valuable insights and drive better performance across the board.