Here are the statistical relationships among Strategic Metrics, KLIs (Key Lead Indicators) and KPIs (Key Performance Indicators).
The interesting thing in this discussion is that strategies around developing a set of KLIs will have definitive and huge impact on Organizational Strategic Metric and it carries the statistical relationship even in the predictive time periods. Remember that KLIs are highly predictive measures.
- The KLIs and Organizational Strategic Metric are correlated, but organization’s KLIs will be uncorrelated with the KLIs of the competitive companies, and hence of the Strategic metric of the enterprise. Think about the reasons. After all, one’s strategic metric should be independent of the competition’s strategic metric because of uniqueness of products and services and the uniqueness of value segments. The depth of correlation defines the types of strategies you will develop.
- Strategic metric is a function of vision, an organization’s unique products/services, value segments which the organization is serving, and the budget
- KLIs of an enterprise are highly collinear (or atleast defined in a way as collinear for better interpretation – as one can always construct a complementary measure which may have negative correlation but its impact will be to have favorable effect on the organization’s strategic metric) among themselves and highly correlated with the strategic metric. KLIs are influential metrics that have favorable impact on the organization wide strategic metric
- KPIs are highly correlated and have favorable impact with the strategic metric, though they are not influential metrics.
- Also, KLIs and KPIs are highly correlated
Example: Oakland A’s
The strategic metric of Oakland A’s OBP (onbase percentage)
Their value segment is its fans – these are mostly local (this is not that simple in the case of other organizations spread out around the country). There is a good analytical opportunity to figure out value segments from this context.
We all know what was their budget situation. Had the budget been a different order of magnitude there is no interesting story here. Oakland A’s had one third of the budget of the best team in the franchise against which Oakland A’s was daring to dream of beating them.
All the metrics associated with hiring, training, fielding, and firing were all KLIs one has to see the movie to appreciate the details here.
The ticket sales, for example is not a KLI. On its own, it will neither happen nor influential to win the division title for example. But as KLIs start pushing the organization’s strategic metric, any number of KPIs one may define will be after effect blooms of the effect of succeeding in the strategic value creation, more and more of the winning.
Why wouldn’t you buy this function, for Oakland A’s, Winning=function of OBP and OBP=(KLIs)
A key point I can not stress enough is that the strategic metric has a lag relationship with KPIs, and also they are weak relationships. Managers should be thinking about KLIs, Key Leading Indicators to help them accomplish their favorable impacts on strategic metrics.