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Online Intelligence SolutionsKEY PERFORMANCE INDICATORS (KPI) –DEFINITION AND ACTIONIntegrating KPIs into your company’s strategyB y J a cq ues WarrenWHI TEPAPER

WHITEPA P E RABOUT JACQUES WARRENJacques Warren has been working in the online marketingfield since 1996, focusing on Web Analytics since 2002. In2006 he founded WAO Marketing, a consulting companyspecializing in the analysis of online data and e-businessoptimisation for governments and leading companies inCanada, the US and Europe.Jacques is the co-author of “Web Analytics : Mesurer lesuccès et maximiser les profits de votre site Web*” Eyrolleeditions 2009.*“Web Analytics: Measuring the success and maximizing the profits of your website”AT INTERNET / WHITE PAPER / KEY PERFORMANCE INDICATORS (KPI) – DEFINITION AND ACTION2

SUMMARYABOUT JACQUES WARREN2INTRODUCTION4DEFINING THE KPIs5MAIN CHARACTERISTICS6ESTABLISHING KPIs7LAUNCHING THE DISCUSSION8FORMALISE AND DOCUMENT8SHARING THE RESULTS9USING THE KPIS10STRATEGY AND ACTIONS10MEASUREMENTS AND OPTIMISATION11AT INTERNET / WHITE PAPER / KEY PERFORMANCE INDICATORS – DEFINITION AND ACTION3

INTRODUCTIONThe widespread use of Web Analytics over the last fewyears has shown us that there is a general trend whichhas been adopted in measuring the performance ofonline investments. Veterans in the field no longer feelthe need to convince company leaders of the importanceof measuring online investments. Any large company orany company for that matter should use one or severaldifferent tools to analyse their online activity.Not all companies have taken the required step whichinvolves establishing the most important areas to beanalysed so that the success of their online activity canbe measured. Ideally, this process should be carried outbefore any web analytics tool is used. The term which isused to refer to these measurements is Key PerformanceIndicators, or KPI.Without KPIs companies will play the web analytics gameby ear, in other words they will have no reference to anyindicators showing them how well their online activity isperforming.AT INTERNET / WHITE PAPER / KEY PERFORMANCE INDICATORS – DEFINITION AND ACTION4

DEFINING THE KPIsA KPI is ameasurement whichevaluates how acompany executes itsstrategic visionA definition of the term KPI could have been given from theoutset, but this is not as easy a task as one might think,due to the fact that there are so many different variationsof the definition of a KPI available in the literature writtenon this topic. As consultants, we generally prefer a moreconcrete, rather operational approach, of the differentconcepts; KPIs they ought to be practical tools rather thandiscursive ones.A KPI is a measurement which evaluates how a companyexecutes its strategic vision. The term strategic visionrefers to how an interactive1 strategy is integrated intoa company’s strategy as a whole. It is important thateveryone involved in the company strategy agrees onwhat the strategy represents and how its variations areinterpreted.A KPI, or group of KPIs to be more exact (since a KPI rarelyexists alone), form a type of language which can be used,not only to measure the effectiveness of Web projects,but also to state their chances of success. A KPI is afundamental characteristic, and without any agreementon their meaning, would become a source of chaos ratherthan a source of focused action.1 The term interactive is used to include the different ways in which the Web is presentnowadays: web sites, social networks, mobiles etc. The web is used in the exact sameway for all of these different platforms.AT INTERNET / WHITE PAPER / KEY PERFORMANCE INDICATORS – DEFINITION AND ACTION5

MAIN CHARACTERISTICSWhen asked thefollowing question“How is thecompany’s onlineactivity performing?”the ideal responseshould be able to relyon three to five keyfigures associatedwith the KPIsThe following list shows the main characteristicsassociated with KPIs, they should:Conform to a company’s strategy – this is an extremelyimportant point, as mentioned above. If there is no clearlink between a KPI and a company’s business objectives,then a KPI is not a KPI. The indicator may well be anoperational or secondary metric, but it is not a keyperformance indicator.Be easy to understand – this may be a very obviouspoint but it tends to be forgotten. It is easy to imaginethe different problems in productivity which a poorunderstanding of the indicators might lead to. If the KPIsare used to communicate, then everyone involved needs toagree on what they are used for and what they mean.Allow for action – a measurement which cannot beinfluenced, even indirectly, is not of great importance. Itis extremely important that people are aware of how theevolution of KPIs can be monitored and influenced.Be contextual – it should also be easy to adapt KPIs to thecreation of different targets which are to be reached and tothe creation of lower thresholds, both of which are part ofthe continuous improvement of interactive marketing. Atthe beginning of the year we recommend that a companyclearly define its growth or objectives depending on theindicators that have been used. KPIs will also be used tomake it easier to determine how marketing activities willcontribute to objectives being reached throughout the year.We recommend that the term KPI be reserved and usedfor the most important metrics of your web investments.A high number of indicators, for example more than 15,would be the result of a lack of clarity as to what really liesat the most strategic level.When asked the following question “How is the company’sonline activity performing?” the ideal response should beable to rely on three to five key figures associated with theKPIs.AT INTERNET / WHITE PAPER / KEY PERFORMANCE INDICATORS – DEFINITION AND ACTION6

ESTABLISHING KPIsBy including all ofthe managers [ ]it becomes a mucheasier and quickertask to reach anagreementOur involvement in several different projects for definingWeb KPIs with some of the largest industrial companieshas allowed us to establish the following rules of thumb:A KPI project involves everyone – By including all ofthe managers who are involved in a company’s onlinemarketing, it becomes a much easier and quicker task toreach an agreement. External help is a major advantagebut it is extremely important that the procedure that isdrawn up comes from within the company.A general consensus is key – This is a consequence ofwhat was mentioned in the previous point. Participation inany KPI project must result in a common understandingof the importance, meaning, desired variations andthe responsibility of each of the indicators. Withoutthese guidelines in place, any negative result will bechallenged. This leads us to back to asking differentquestions about the company’s culture. Any analysiswhich is used to measure performance depends stronglyon the implementation of the measurement tool that isused within the company. Is such a tool used as a controlmethod or for the purposes of learning?There is no one universal solution – If companies witha similar background were to use the same method tomeasure their online activity then to a certain extent auniversal solution would exist. Establishing KPIs is a taskthat should not be avoided, because it is important that thedifferent indicators respect a company’s strategic vision.AT INTERNET / WHITE PAPER / KEY PERFORMANCE INDICATORS – DEFINITION AND ACTION7

LAUNCHING THE DISCUSSIONIn order to help companies think about and identify KPIsthey need to ask themselves the following question: “If weasked management to triple Web budgets, what figureswould we use to support our demand?” You can imaginethat you will probably not be talking about visits or timespent on a site to begin with, never mind conversion rates!This simple question raises a rather important heuristic;it forces participants to immediately position the web aspart of their company’s strategic plan. The hypotheticalquestion stated above restricts teams to thinking aboutand defining their measurements from a purely businesspoint of view, prohibiting them from thinking in termsof Web Analytics. From the outset, these businesschallenges take precedence over the different conceptsand technology used. The technology depends on therequirements of the analysis, rather than on the differentanalyses which the wide range of tools can provide.FORMALISE AND DOCUMENTThere is a lot ofgroundwork tobe done, whichconsists in clearlydocumenting eachindicatorA KPI project should be seen as a formal exercise. Thereis a lot of groundwork to be done, which consists in clearlydocumenting each indicator with the method used tocalculate it, where the indicator comes from and the dataformat used. It is also important to state the metrics whichmay influence the indicator the most. This phase, albeit anextremely important one is, however, neglected too often.It ensures the durability of the analyses, as far as bothduration and interpreting the results are concerned.Such an exercise will also help companies choose thetechnology that is to be used for data processing. Thechoice of the technology that is to be used is based on theneeds of the company and not on the different attractivefeatures associated with it.AT INTERNET / WHITE PAPER / KEY PERFORMANCE INDICATORS – DEFINITION AND ACTION8

SHARING THE RESULTSWe believe that KPIs have a direct link with the way inwhich the results are shared, and what format is used etc.We have no preference as to what particular type of reportis used, whether it contain mainly text or visuals, as is thecase with very modern dashboards. What is important isthat the main body of the message (a clear explanationof what has happened, what this will impact, what willhappen in the future, and clear predictions made by theKPI objectives) will be easily understood by a company’sdecision-makers.Choices relating to the different reports which are to beused must respect this principle of clarity.AT INTERNET / WHITE PAPER / KEY PERFORMANCE INDICATORS – DEFINITION AND ACTION9

USING THE KPISSTRATEGY AND ACTIONSThe following diagramillustrates how certain metricsinfluence a KPI:METRICS VISITS VISITS TO THE CRITICAL PAGESOPERATIONAL KPIS TRANSACTIONS CONVERSION RATE SALES PER ORDER TOTAL SALESKPIPERCENTAGEINCREASE OF ONLINESALESWe have shown the very narrow link that exists betweenKPIs and a company’s strategic vision for their onlineactivity. As KPIs are used to describe how well a company’sstrategy has been executed, we could almost say that theKPIs are a component of the strategy.All that remains to be known is how they can beinfluenced. We insist that each KPI be subject to thedetermination of a company’s growth objectives which areto be reached; each indicator also needs to be assigned toone or several managers who are responsible for creatinga company’s goals and objectives.It is only natural that we have a very clear idea of how KPIscan be influenced through concrete actions. A well definedKPI will go through all of the variables which have a directimpact on each indicator. Operational KPIs are referred toas Drivers, or quite simply metrics. These measurementsgroup together metrics which are found in the reports ofweb analytics products.For example, if one of the KPIs is “to increase thepercentage of online sales” an example of a metric whichwould have a direct influence on online sales would bethe “conversion rate”. In trying to increase the conversionrate, a marketer will indirectly influence the KPI in the waythey want to. “Average order sales” is another example ofa metric which could have a direct influence on the sameKPI, and which can be found in the reports of applications.It is also possible to make a list of the different metricswhich act upon the same KPI.AT INTERNET / WHITE PAPER / KEY PERFORMANCE INDICATORS – DEFINITION AND ACTION10