What if companies could harness the expertise of all departments to inform their most important KPI: customer lifetime value? Taking it a step further, direct marketing legend Mary Kay, expert copywriter Mary Imagine a CLV-focused conversation between Wells Lawrence and AI pioneer Kai-Fu Lee. OpenAI founder Sam Altman and advertising guru David Ogilvy also have relevant opinions. In fact, this actually happened in his recent ChatGPT 4 session, which was devised by his MIT researchers.
“I basically literally created a dialogue between customer lifetime value KPIs and churn management KPIs,” explains Michael Schrage, a fellow at the MIT Sloan School Digital Economy Initiative. “When we turned our KPIs into personas, we found that ChatGPT worked really well.”
Mr. Schrage’s mock chat with All-Star executives resulted in a transcript containing key insights and recommendations for getting the most out of CLV. He believes the findings provide a roadmap for companies to improve all kinds of KPIs, from cash flow to churn, while breaking down corporate silos.
This experiment, in which executives from different companies from different eras come together to talk, sounds like something out of a science fiction novel, but it also foreshadows the future for companies bold enough to rethink how they measure success.
Use AI and machine learning for KPIs
A new report titled “The Future of Strategic Measurement: Enhancing KPIs with AI” and jointly published by MIT and Boston Consulting Group (BCG) includes ChatGPT conversations in the appendix section, but primarily , focuses on a variety of case studies and research. How AI-based machine learning and predictive analytics can power your KPIs.
The authors argue that as companies use AI to transform areas such as resource planning, they should also use technology to reevaluate KPIs. Some of your KPIs may be decades old.
According to the authors, AI-powered KPIs, or “smart KPIs,” improve on traditional metrics that simply track performance, and they identified three types of smart KPIs: descriptive, predictive, and prescriptive.
“What we’re saying is we’ve invested hundreds of millions of dollars in building data capabilities, technology capabilities, AI algorithms, measurement capabilities, and we’re using some of those investments and capabilities to not only improve KPIs; We need to redefine them,” said Shervin Khodabande, managing director and senior partner at BCG and co-author of the report. luck.
The report’s findings are based on a global survey of more than 3,000 respondents representing more than 25 industries and 100 countries. Researchers also surveyed 17 top executives at global companies, including General Electric, Schneider Electric, Pernod Ricard, and Wayfair, to understand how companies are approaching this new paradigm in performance measurement. I interviewed him.
Researchers found that AI-enabled KPIs have a strong impact on three aspects of collaboration: Your team is more likely to agree on which KPIs to prioritize. KPIs that are linked together across the enterprise can be optimized as an ensemble rather than a silo. Teams are also more likely to share information as needed, increasing accountability and collaboration.
Perhaps surprisingly, only 34% of organizations surveyed have used AI to reevaluate KPIs, but 90% of those that have Improvements have been reported. The report also shows that companies that use AI to assess the quality of their KPIs are three times more likely to generate financial returns.
Schrage said the findings highlight how difficult it is to understand relationships between KPIs due to departmental silos, especially in a digital environment. “He has KPIs for cash flow. He has customer lifetime value KPIs. He has churn KPIs. How well can they play together? Once you minimize churn, how do you increase customer lifetime value?” Can it be improved?”
While AI offers businesses various opportunities to create new types of KPIs, this does not necessarily mean that it is time to abandon traditional KPIs, but rather that businesses need to consider them more critically. It just means that there is, Khodabande said.
How Pernod Ricard improves its KPIs
Pernod Ricard, a $10 billion global spirits company that sells to both retailers and wholesalers, uses AI to describe and deepen the relationship between its two most important KPIs: profit margin and market share. I am.
At Pernod Ricard, there is a lag between launching a new ad and seeing the impact on sales. That’s where AI comes in, said Pierre-Yves Caloc, the company’s chief digital officer. luck.
“We created smart KPIs: return on sales for advertising campaigns and promotional effectiveness for specific promotions,” said Calloc’h, adding that AI helps the company identify the specific impact of TV and social media campaigns. He added that it helps to These run in parallel, including for example the effects of price changes. He likened the process to separating the elements of a movie.
“When you go to the movies, you hear the actors’ voices, the music, and the noise,” he continued. “And without tools to isolate each, it’s difficult to determine which one is causing the sound peak.”
At Pernod Ricard, the profitability KPI has historically belonged to the finance department, while the marketing department has managed the market share KPI, and the two are interrelated. As Calloc’h points out, AI can be used to simultaneously assess how changes in marketing spend impact both market share and profitability.
potential pitfalls
Every company defines success differently. And while a KPI review plan may sound good in theory for executive leaders, if leaders fail to execute on it, it can create problems, especially for employees. .
Darrin Brown, former regional sales and operations manager for PPG Industries and Dillard’s, recently discussed the pitfalls of KPI planning on LinkedIn. Adding new software does not necessarily directly lead to a viable solution.
“The last time I helped launch it, they asked us as employees to create a customer profile for each customer, prospect, and prospect,” Brown said. luck. “I had a very large territory with over 400 active customers, but no one knew how many leads or leads I had. Data entry took weeks. But to be honest, at some point I stopped typing.”
Implementing KPI software should be done with reasonable expectations, Brown added. Companies can sometimes have a tendency to get “drunk” about their capabilities and what a successful company looks like.
“I also think KPIs tend to summarize what the path to success looks like,” he added. “That’s especially not possible in sales. Salespeople use their strengths to find success.”
However, Brown believes that KPIs, if set correctly, can be of great help to businesses, especially when it comes to managing financial goals and employees. When it comes to AI, he believes it has the potential to improve KPIs, especially when it comes to managing data collection and communications.
Overall, AI-powered KPIs are still in their infancy, but research from MIT and BCG shows that companies implementing the technology are seeing results so far. Increased coordination, increased collaboration, and the likelihood of more accurate forecasts. Further efficiency.
Leveraging data to create new KPIs can prove costly and time-consuming, but as Schneider Electric Chief Governance Officer and Executive Director Hervé Coureille acknowledges in the report, , it’s a necessary part of moving forward.
“We want our KPIs to evolve over time, because we don’t want to drive our business based on legacy or vanity metrics,” he told the authors. .
