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Innovation Metrics – KPIs and CPIs



Most leaders say they’re customer-centric.  However, most metrics are company-centric with Key Performance Indicators (KPIs) for revenue, growth, profitability, market share, meeting strategic objectives, etc. These are measures of how customers are performing for the company.

Extending on this, for an organization to be customer-centric to maximize opportunities and growth, there is also a need to measure how the company is performing for customers. This is where Customer Performance Indicators (CPIs) are important.

While customers typically don’t have online dashboards with data visualizations that reflect how a company is performing for them, customers do bring to every interaction a purpose, problem, need, intent, or question — a desired outcome — along with expectations for how quickly or easily that outcome will be realized. These outcomes can be measured by associated CPIs. And because of their importance, a growing number of organizations are adopting CPIs to monitor their performance, meeting customer expectations, getting insights on new opportunities, help in assessing product / service value, to help predict change, for better look ahead to predict growth or change in the market, etc.

An example of using CPIs is in the insurance industry when a person is shopping for insurance. When they submit their information in an online form or over the phone, companies that provide pricing within seconds (the applicant’s desired outcome), they are much more likely to get the business than an organization who doesn’t (ie: provides a message thanking the person for their inquiry and advising an agent will follow-up to provide a quote).  In this case, the person’s intended outcome and expectation is a fast quote.  This CPI is an example of a company providing quick gratification – to meet or exceed User expectations – a very important customer centric metric. From this, it’s easy to understand that while one company is following the traditional process of routing the inquiry to the appropriate agent according to geographic or other rules, etc. –  the person is collecting quotes from competitors.  By the time an agent contacts the potential customer, the opportunity is gone since the person has already bought from the company that quickly and easily satisfied their needs.  Insurance companies that measure and manage “Fast Quote” as a formal CPI find a direct correlation between performance on this CPI and growth. And the more an enterprise is focused on outcomes important to customers and uses CPIs, the better the company is positioned for success since performance for customers is measured.  And with the company performing for Customers, this leads to better business outcomes (KPIs). 

 

Distinguishing CPIs from KPIs

There are two elements that qualify a metric as a CPI. Most importantly, it must be an outcome customers say are important to them. Second, a CPI must be measurable in increments that customers value such as – reducing time to complete a task, greater convenience, number of options available, dollars saved, revenue generated, recognition, personal or business achievement, productivity gain, ease of doing a new task, simplifying a process, improving the UX, making quicker and better decisions, and other items that are important to customers.

Many assume that Net Promoter Score (NPS) — which measures a customer’s willingness to recommend a company’s products or services to others — is a CPI.  But in reality, only companies care about their NPS as a KPI whereas customers typically are not interested in it. So, NPS is just another KPI. While it may be a vague proxy for how well a company is performing for customers, unlike CPIs, NPS does not provide direct traceability to any single intended customer outcome or expectation, or show where the company may be falling short, all to the detriment of expanding enterprise relevance and revenue.

Any group that directly or indirectly touches customers can use CPIs, including marketing, sales, product management, customer service, operations, and finance. Some examples are –

While these examples may not be metrics that companies have traditionally tracked, they’re what customers actually care about. And by tracking what’s important to customers, companies have better visibility into actions they can take to improve customer outcomes – which directly influences business appeal, opportunities and performance.

When employees are only measured on and compensated for their performance on KPIs, they’re naturally incentivized to do whatever is necessary to achieve that outcome for the company. This can include manipulating things and doing various other things that customers do not like. Conversely, when employees are accountable to CPIs, they’re motivated to collaborate and help customers achieve their desired outcome. Fundamentally, CPIs help align provider and customer interests so both parties are better positioned for success.

From this it should come as no surprise that companies adopting CPIs (with employees focused on improving customer outcomes) are increasing sales, expanding opportunities, have shorter sales cycles, generating more favorable customer sentiment, are improving behavior, and have higher Customer loyalty.

 

Defining Your CPIs

There are four common mistakes companies make when trying to define their CPIs. These include:

  1. adopting CPIs from another company   … which reveals what’s important to their customers
  2. relying on judgement from internal teams who assume (usually inaccurately) that “we know our customers and what they need”
  3. focus groups   …. which frequently reveal misleading groupthink
  4. surveys, which are the most tempting of all because of relative speed and scale.

Because none of these approaches work well for identifying the CPIs associated with the specific outcomes your customers expect when interacting with people, systems, processes, or policies in pursuit of their specific objectives, the need is to identify CPIs with contextual inquiry.  There are various ways of doing this – including using an ethnographic research method in which specially trained researchers speak with or observe customers in the actual environments in which customers think about or try to achieve specific outcomes (homes, offices, stores, other locations, or traveling in between).  Researchers trained in this type of ethnography know what to look for to reveal customer frustrations, expectations, and target outcomes at specific points of their journeys, and then ask the right series of open-ended questions to gain insights that surveys wouldn’t know to ask, and that customers might not be inclined to answer in a survey.

Driving Business Performance by Connecting CPIs to KPIs

Once you’ve determined your CPIs, start measuring them and look for the potential relational impact each might have on one or more of your KPIs. The subsequent hypotheses you develop about CPI – KPI relationships can be proven or disproven by running controlled experiments.

Once you’ve confirmed relationships between specific CPIs and KPIs, you can begin holding teams accountable to CPIs they can impact. Those employees will then be managing to the outcomes important to customers, so the company is better positioned for growth and to be better at business innovation.

It’s ironic in an age where so many companies proclaim to be customer-centric, customer-first, or customer-obsessed that most still focus only on company-centric metrics or KPIs. Enterprises that extend their metrics with CPIs reflect a customer-centric culture with capabilities that Customers value. As a result, these companies will increasingly outperform competitors, are better optimized for accelerated, differentiated, and defensible growth.

 

May 14, 2020          –          Accenture / CAIL          –          Innovation commentary          info@cail.com

 

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