Hero KPIs

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Key Performance Indicators do exactly what the name suggests: they are the most important metrics of performance. You’ll often hear about “cascading KPIs”, where strategic high level KPIs are expanded downwards to operational KPIs so each division or team within the business can measure their performance , which then flows upwards so the organisation can achieve its goals. Visualise this as a pyramid in which each level forms the base of being able to build the next, until the goal is met.

That’s an ideal, theoretical way to understand KPIs, however the real world is different - goals can still be achieved even if some KPIs aren’t met (ie the pyramid won’t crumble), because in reality many operational KPIs are not linked directly through to the ultimate strategic goal. Visualise this as the Pyramid having some gaps while still being structurally sound.

How, then, is a team meant to work when not everything KPI actually needs to be met 100%? How do workers know whether their work at lower levels of the pyramid is actually achieving anything when the levers they work with are so far removed from the strategic goal?

This week we’ll be explaining what a “Hero KPI” is, when it can be useful, and how to use it.

Hero KPIs

A Hero KPI is exactly what it sounds like - a positive role model to aspire to. Think of Superman or Captain America, with a team of soldiers doing what they can to help. When the hero succeeds, the team wins.

To stretch this analogy a bit further, you don’t need everything to go right for the Hero to win, but you do need to make sure what you’re doing is going to help instead of hinder (so make sure you don’t accidentally open a box of kryptonite).

There are other names for this concept of a unifying metric, but I prefer using Hero KPI as it feels more active and inclusive than, for example, a “North Star” KPI - that makes me think of a boat navigating at night … sometimes drifting off course but always working to slowly get back on course, always moving towards but never actually reaching its goal. Whereas the Hero is in a battle, and you can see where your own efforts are helping them win, and that can be celebrated!

Hero KPI Characteristics

A Hero KPI is a single, critical metric that an organisation uses to drive its performance and focus its strategic efforts. It is chosen because it has a significant impact on the organisation's overall success and will have the following characteristics:

• Strategically Aligned: It reflects the core mission and strategic objectives of the company.
• Impactful: It has a significant influence on the company’s success and bottom line.
• Measurable: It can be quantified and tracked over time.
• Understandable: It is easily understood by all employees, ensuring alignment and focus.
• Actionable: It can drive actionable insights and lead to meaningful changes and improvements.

No two businesses are the same - so simply copying a competitor’s Hero KPI is not always going to work. In the next section we’ll look at some examples from well-known companies.

Some Concrete Examples

Sometimes it’s quite easy to guess what a company’s Hero KPI is, even if they don’t publicly declare it. Here are some international examples - you probably already know some of these, and why they use that particular KPI:

Netflix: Subscriber Growth

• Netflix tracks subscriber growth, which indicates the company’s focus on market expansion and user retention.

Airbnb: Nights Booked

• Airbnb focuses on the number of nights booked as it’s related to both usage of its platform as well as revenue.

Amazon: Customer Satisfaction

• Amazon has long prioritised customer satisfaction as its core KPI, ensuring that all operations align to deliver the best customer experience.

Facebook (Meta): Daily Active Users (DAUs)

• For Facebook, the number of daily active users is a crucial KPI, reflecting the platform's engagement and reach.

Google: User Engagement

• Google focuses heavily on user engagement metrics to ensure their services are providing value and keeping users active on their platforms.

Tesla: Production and Delivery Numbers

• Tesla often focuses on its production and delivery numbers as a primary KPI to reflect its operational efficiency (although sometimes this metric doesn’t quite line up with market penetration).

Apple: Revenue per Customer

• Apple often tracks revenue per customer as a primary KPI to gauge the value generated from its customer base (the Apple ecosystem is hard to move away from!).

Salesforce: Customer Success

• Salesforce uses customer success metrics as a primary KPI, ensuring their clients achieve significant results using their platform.

Toyota: Quality Control

• Toyota places a significant emphasis on quality control metrics. The company uses a primary KPI related to the number of defects per vehicle produced, ensuring high standards and customer satisfaction.

Unilever: Sustainable Living Brands

• Unilever tracks the impact of its "Sustainable Living Brands" as a primary KPI. This KPI measures the brands that are contributing to its sustainability goals and delivering superior social and environmental benefits.

Siemens: Innovation Rate

• Siemens focuses on the innovation rate as a primary KPI, which measures the percentage of revenue generated from products and services that were introduced in the last five years. This KPI ensures the company remains at the forefront of technological advancements.

Samsung: Market Share in Key Segments

• Samsung closely monitors its market share in key product segments such as smartphones and semiconductors. This KPI helps the company maintain its competitive position in these critical areas.

HSBC: Return on Tangible Equity (RoTE)

• HSBC uses Return on Tangible Equity as a primary KPI to assess the bank's efficiency of the bank's equity utilisation.

Sony: Customer Satisfaction Index

• Sony tracks customer satisfaction as a key KPI to ensure its products and services meet or exceed customer expectations, thereby maintaining its reputation for quality and innovation.

L’Oréal: Brand Love

• L’Oréal focuses on "Brand Love," a KPI that measures the emotional connection customers have with its brands. This KPI helps the company gauge brand strength and loyalty across its portfolio.

And here are some a bit closer to home:

Commonwealth Bank of Australia: Customer Satisfaction

• CBA prioritises customer satisfaction as its primary KPI, regularly measuring and aiming to improve customer experience across its services.

Qantas: On-Time Performance

• Qantas focuses on on-time performance as a critical KPI to ensure high standards of punctuality and reliability, which are key factors in customer satisfaction and operational efficiency.

Woolworths: Sales per Square Metre

• Woolworths measures sales per square metre as a key KPI to gauge the effectiveness and efficiency of its retail space, ensuring maximum profitability from its store layouts and product placements.

Telstra (Australia): Network Reliability

• Telstra uses network reliability as a primary KPI, focusing on the uptime and performance of its telecommunications network to maintain service quality and customer trust.

Westpac: Customer Experience (CX)

• Westpac, one of Australia's largest banks, focuses on customer experience as a key KPI. This includes metrics like Net Promoter Score (NPS) to gauge customer satisfaction and loyalty.

BHP: Production Output

• BHP, a leading global resources company, often uses production output as a primary KPI. This metric measures the volume of minerals and resources extracted and processed, reflecting the company's operational efficiency and capacity.

CSL Limited: Research and Development (R&D) Success Rate

• CSL Limited prioritises the success rate of their R&D projects. This KPI is crucial for measuring the effectiveness of their innovation and development efforts in producing new medical products.

Wesfarmers: Return on Capital Employed (ROCE)

• Wesfarmers measures ROCE as a primary KPI to assess the efficiency and profitability of their capital investments. This metric helps in making informed financial decisions and improving overall business performance.

RedBalloon: Employee Engagement

• RedBalloon’s Employee Net Promoter Score (NPS), which measures employee satisfaction and loyalty. RedBalloon places a high value on creating a workplace where employees feel motivated and valued, believing that happy employees lead to happy customers and ultimately, improved business performance

What happens when the KPI is poor?

Sometimes a company goes through periods where its Hero KPI performance is poor. Hindsight is always 20/20, but it is rarely wrong - a poor Hero KPI is generally a sign that is has become detached from one or more of the characteristics mentioned above:

• Strategically Aligned: It no longer reflects the core mission and strategic objectives of the company (Blackberry is a really good example of this. It’s focus on hardware sales as a primary KPI made it blind to the emergence of software ecosystems in its competitors).
• Impactful: the business’s trading environment has changed so much that the KPI no longer significantly influences the company’s success and bottom line (remember MySpace? It’s Hero KPI was Monthly Active Users, which became useless at identifying problems when Facebook killed it with a better UX and user-friendly features)
• Measurable: It can’t be quantified and tracked any more (this one’s pretty rare,. but the best example of this is Enron’s earnings from mark-to-market accounting. Over time the subjective judgements and optimistic assumptions became impossible to sustain).
• Understandable: It is easily understood by all employees, ensuring alignment and focus (AT&T suffered when employees could no longer understand or relate to it’s Net Promoter Score when its operations and customer interactions became more complex).
• Actionable: It can drive actionable insights and lead to meaningful changes and improvements (GE used Earnings Per Share as it’s hero KPI, which drove an incredibly short-term focus and resulted in a reliance on financial engineering such as stock buybacks to improve that KPI, which eventually obscured the true health (or malaise) of its business units).

Takeaways

A Hero KPI can be incredibly powerful when it’s the right one. It can motivate and engage staff, and have all levels of the organisation working towards the goal that it embodies.

But like everything in business, it’s not a set-and-forget thing. Businesses and their operating environments change over time.

So if you have a Hero KPI, congratulations! But don’t assume the job is finished. Regularly assess not just the Hero KPI, but all metrics in your organisation. Are they getting the right results? Do you know why/why not?

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?? Hi, I'm the founder of?Ascern Advisers. We provide outsourced CFOs for businesses with Growth Potential. DM me or email me at?[email protected]?if you want to chat.