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June 18, 2005

My Daddy Spent Two Weeks at the Strategy Table, and All I Got was this Lousy KPI

Here's a story for IT management, but bear with me.

Marketing guru Seth Godin was annoyed by companies just not trying hard enough, so he busted them -- leaving them with the JSLogan strategy teaser Would You Rather Have Great Marketing and Sales or A Great Product?

Well, let's see.

First let's assume that there is a difference between a customer (someone who buys something) and a user (who is just someone that somehow already has something). Products often have WAY more users than there are customers.

Great marketing often creates customers. Mediocre products often get rid of them.

Great products do not create customers; great products keep them.

But the problem isn't really dealt with unless you include the issue of sales. If you don't need sales, then you're just in a whole different game than if you do need sales.

Marketing doesn't create sales. Products don't create sales.
Customers create sales. (Remember? It's their money, and they have to give it to you or there is no sale!)

If you need sales, you want your marketing to get out there and create those customers, so that they'll have a chance to create sales.

If you don't need sales, then you can use your resources instead to produce great products.

So if you had to choose, which is more important?

This seems like just a game, but when you think about it, don't most companies ask themselves "Why can't we have both?" And for any company that does ask the question, the problem quickly arises of having the issues competing against each other, forced by the boundaries of the budget and the hurry-up of more competition from outside.

Strategy then tries to work out the problem, providing the rationale for deciding relative importance. Prioritizing is always annoying when it means that you have to play the choose your pain game. But without prioritizing, there's little point in trying to "manage performance", and without managing performance there is little point in strategy...

The challenge in prioritizing is that it requires a lot of logic, and faulty logic will probably leave you with any of three good performance inhibitors:
- focussed on the wrong problem
- replacing action with debate, or
- trying to get from point A to point C without going through point B!

So, thinking through the activity measurements you use now, especialy the ones you call "productivity", how many of them are dedicated to faulty logic? Are they trying to show products creating customers?

Now how about this: are they trying to show IT creating business results?

IT doesn't create business results; business relationships create business conditions conducive to events that produce business results. IT supports business relationships. Is anyone measuring the relationship support? How about the business conditions? What are the forms of relationship support provided by IT? If those forms are not known or understood, then how can an activity measurement possibly be a key indicator of performance?

There are three ways to spin off from this story.

One: bad strategy, which comes from bad logic, is a bad thing.If it cranks out misguided KPIs, and you put a lot of energy into executing on those KPIs, you'll redline your organization. Better go check out the performance logic in the strategy.

Two: IT doesn't only support relationships. Obviously, technology has the power to directly create environments too, meaning "conditions", in which relationships can grow and prosper. Likewise, technology can directly create "events" by empowering certain things to happen that otherwise just couldn't... But the business logic of these things is that your company assigns technology to do those tricks and leverage them in the context of the purpose of the relationships -- so they are basically forms of relationship support.

And three: internal relationships that build the company count too. The parts of the organization that do marketing, or sales, product development, etc., all consist of key relationships driving their respective results, and IT must support those relationships. Strategy doesn't make the suport of one less important than of another. Instead, strategy tailors the particular way of supporting each one, by declaring what characteristics of each one are currently most necessary.

So, once that KPI (key performance indicator) is presented in the IT plan, it's worth "auditing" it to be sure that it is really about solving the right problem.

Posted by Malcolm Ryder at June 18, 2005 6:24 AM

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