Good to Great and KPI
I recently read Good to Great by Jim Collins. The book profiles 11 companies that made the leap from “good to great” in terms of stock market performance over a 15 year period and various other criteria. This means that lots of companies that you might have expected to be called “great” are not included. In any case, it is not so much about who made the list, but what common traits these few companies share that allowed them to go from “good” to “great”. I don’t want to review or summarize the book, but what caught my attention (and the reason for this post) is the reference to Key Performance Indicators, even though Collins doesn’t use this term in the book.
“…we did notice one particularly provocative form of economic insight that every good-to-great company attained, the notion of a single “economic denominator.”
“If you could pick one and only one ratio – profit per x – to systematically increase over time, what x would have the greatest and most sustainable impact…“
As an example, Walgreens wants to have the most convenient stores, which may be in expensive locations. If they used profit per store, they might have favored cheaper locations, but that would have run against the convenience concept. As a result Walgreens switched its focus from profit per store to profit per customer visit. What I find remarkable is that Walgreens and other companies mentioned in the book are able to boil down their economic reality into a single KPI.
It is not suggested that it is easy to find such a single KPI. In fact, you may not accept that it is possible to find just one KPI for your company, but just having this sort of dialogue yields valuable insights.
Can you find such a KPI for your company that reflects your economic reality?
In an e-commerce setting, I dare say that conversion rate would not qualify. Conversion rate does not say much about your economic reality and is not an actionable metric. A higher conversion rate might follow when you find and improve “your” KPI, but not the other way round.