We need to define our “vital few” KPIs or value factors with the intent of organizing the entire company around these.
In the Radical framework, we’ve now arrived at the second A in the acronym: being “aligned” on business goals. This seems like such an obvious statement as most companies claim to have a clear business strategy and associated goals. And I still have to meet the first serious and engaged employee who claims to not be putting his or her energy toward the company’s business goals.
In reality, however, things aren’t nearly as peachy as they seem to be from the outside. There are, at least, two main challenges. The first is that companies structure themselves into functions, departments and teams that often are organized along the intended value creation process. The intent is to have an end-to-end delivery of value toward the customer with each function, team and department contributing. In practice, however, each of the units will focus on optimizing locally and be more concerned with getting their own work done and handed off to the next stage in the process than optimizing for the end-to-end.
For any leader who understands the end-to-end, few things are more frustrating than seeing the local optimization process in action. Even if you explain again and again that teams should operate differently, despite good intentions by the individuals involved, we see teams sliding back time and again as it’s natural to focus on doing your own work optimally from your perspective.
The fascinating observation I’ve had numerous times is that when I ask people how they’re adding value for the company, everyone has an answer that makes sense or at least is internally consistent. As we discussed in earlier posts on data in this series, many companies don’t have a clear, quantitative definition of success. Consequently, there are numerous aspects of the offering to customers that are considered to be part of the value the company delivers.
That brings us to the second challenge: if companies don’t specify in detail the key factors that deliver value and fail to provide guidance on the relative priority of the value factors, everyone in the company will simply focus on what they think they can contribute and create a story of how their work is part of the value delivery to customers. We often refer to this as the “worthwhile many” trap: for any non-trivial product, there are so many aspects that could be considered to add value that it becomes virtually useless to talk about value. Everyone can concoct a story on how they add value through their actions and they’ll believe their own story.
The answer to these challenges is to move from the “worthwhile many” to the “vital few.” Rather than allowing for dozens of factors to be considered important, companies need to focus on bringing this down to a small “vital few” set of measurable KPIs that are pursued, define the relative priority of these and then disincentivize any discussion of other values.
Doing so tends to lead to huge debates about the value factors and KPIs not included in that priority. As leaders, the important part is to engage in that discussion and explain why the vital few constitute the right set. Three arguments often get used in this context. First, priority: the excluded factor does exist and could be considered relevant but contributes much less to the overall goals than the selected ones. For instance, the user experience of a product for users may not be so relevant if the buying decisions are made by key decision-makers who will never use the product themselves. In these cases, other value factors will have a much more significant impact.
Second, by focusing on the selected KPI or value factor, the excluded KPI is achieved implicitly. For example, by tracking daily, weekly or monthly active uses, we can often deprioritize measuring net promoter scores. If we have solid growth in active users, the NPS is often positive and improving as well as users wouldn’t use the product so frequently otherwise.
The third argument is often concerned with “not now, but later.” Here, we focus on the reasoning that an excluded KPI or value factor is highly relevant, but not at this stage of the company. For instance, when a startup has struck gold and is holding on to the tail of the dragon, growing at an outrageous rate, it shouldn’t focus on entering adjacent markets with its offering. That may become relevant at some point, but right now, we need to ride the tornado and gain as many customers and as much revenue as we can in our core market.
Once the company has established its “vital few,” the task of every function, department and team is to show quantitatively how they’re contributing to one or more of these KPIs. We can even organize around these KPIs and assign teams to each of them. For instance, a company could have an MAU (monthly active users) team and a revenue team, among others. Each of these teams is responsible for driving their KPI, but within guardrails that limit the negative impact they can have on the KPIs of other teams. There will be a need for interaction and alignment between teams, but it will be quite easy to determine the impact each of the teams is having on the “vital few” KPIs.
Many companies fall into the “worthwhile many” trap where everyone in the company can create a story about how their activities and actions are in some way contributing to the value delivery to the customer, but in practice, the contribution is negligible and may even be negative as it hampers more important results. Instead, we need to define our “vital few” KPIs or value factors with the intent of organizing the entire company around these. Every team should be able to quantitatively show how their efforts are contributing to the vital few. Put in other words, by Greg McKeown: “Discern the vital few from the trivial many.”
