Transform Your Business with AI-Generated Smart KPIs

Imagine if your company’s key performance indicators (KPIs) could do more than just track performance—they could predict trends, align your team’s efforts, and even improve your inventory management. New research shows that using artificial intelligence (AI) to create “smart KPIs” can do just that, transforming your business from the inside out.

Why Smart KPIs Matter

A global survey by MIT Sloan Management Review and Boston Consulting Group found that companies using AI to revise their KPIs were 4.3 times more likely to see improved alignment between different functions than those sticking to traditional methods. This is because AI can help uncover hidden performance features and provide valuable insights that might otherwise go unnoticed.

Take Wayfair, for example. The online furniture retailer used AI to reexamine its lost sales KPI. They discovered that a “lost sale” didn’t necessarily mean a customer went elsewhere—it often meant the customer bought something else within the same category. This led Wayfair to create a more valuable metric focused on category-based retention, allowing them to make better product recommendations.

Six Changes to Make When Using AI for Smart KPIs

Here’s how you can shift your thinking and practices to make the most of AI-generated smart KPIs:

1. From Performance Tracking to Redefining Performance
   • Old Way: Tracking existing KPIs.
   • New Way: Use AI to redefine what performance looks like.
   • Example: Google’s AI discovered unexpected performance markers for its media buys.
2. From Static Benchmarks to Dynamic Predictors
   • Old Way: Using fixed benchmarks.
   • New Way: Develop KPIs that predict market conditions, consumer behavior, and supply chain issues.
   • Example: Schneider Electric uses dynamic KPIs to anticipate and respond to weather changes affecting energy costs.
3. From Judgment First to Algorithmically Defined Metrics
   • Old Way: Relying on executive experience and market trends to define KPIs.
   • New Way: Let AI identify new, unforeseen metrics that align with company goals.
   • Example: AI can reveal hidden trends that human analysts might miss.
4. From KPI Management to Smart KPI Governance and Oversight
   • Old Way: Managing KPIs manually.
   • New Way: Use AI to govern and optimize KPIs continuously.
   • Example: Establish a strategic KPI portfolio to represent company aspirations and objectives better.
5. From Keeping an Eye on KPIs to KPI Dialogues and Discussions
   • Old Way: Monitoring KPIs on static dashboards.
   • New Way: Use AI to create interactive dashboards that facilitate real-time dialogues and decision-making.
   • Example: Design dashboards with AI to generate counterfactual scenarios for planning.
6. From Strategy With KPIs to Strategy for and With KPIs
   • Old Way: Setting business goals and measuring them with KPIs.
   • New Way: Develop strategies that include the continuous enhancement of KPIs themselves.
   • Example: Regularly revisit and refine your KPIs to keep them aligned with your evolving business strategy.

How to Implement Smart KPIs Step-by-Step

1. Identify Business Goals and Questions
   • Start by clarifying what you want to achieve and the questions you need to answer. For example, “How can we improve customer retention?”
2. Classify Your Data
   • Organize your data into reference, master, and transactional categories. This will help you pull relevant data for your KPIs.
3. Use AI to Analyze Data
   • Employ AI tools to sift through your data and identify hidden patterns or insights. Tools like Tableau, Microsoft Power BI, or custom machine learning models can help.
4. Develop Dynamic KPIs
   • Create KPIs that can adapt to changing conditions. For instance, use predictive analytics to forecast customer behavior and adjust your strategies accordingly.
5. Create Interactive Dashboards
   • Set up dashboards that not only display KPIs but also allow for real-time interaction and scenario planning. This can be done using software like Tableau or Power BI with integrated AI capabilities.
6. Establish KPI Governance
   • Implement a governance framework to ensure your KPIs remain accurate and relevant over time. This involves regular reviews and updates based on new insights.
7. Engage Stakeholders
   • Regularly communicate with stakeholders to ensure they understand and support the new KPIs. Use storytelling techniques to make data insights more accessible and actionable.

By embracing AI-generated smart KPIs, you can unlock new levels of performance and efficiency in your business. Start with these steps, and watch your company transform from the inside out.