This is a blog post from our partner Workday Adaptive Planning, highlighting a virtual panel discussion on “The Emerging CFO: Rethinking KPIs in the Digital Era.”
Revenue. Profit. Sales. Cash. The metrics that have traditionally defined business success remain relevant but are quickly evolving. Today, more executives are shifting their focus to bring forward-looking key performance indicators (KPIs) into the mix.
From customer lifetime value (CLV) to net retention rate (NRR) to customer satisfaction (CSAT), CFOs are looking to nonfinancial metrics to help them predict the future financial health and profitability of their organizations. Of particular note is the move toward more customer-focused metrics, a reaction to an increasingly data-driven consumer.
“The fact that every single customer you have has a supercomputer in their purse or their pocket changes the way that we can analyze data and engage with people,” said Michael Schrage, research fellow at the MIT Sloan School Initiative on the Digital Economy, in a virtual panel hosted by Fortune and Workday.
A broader, more holistic set of KPIs lets finance leaders make proactive, strategic decisions rather than simply reacting to change. The idea, Schrage said, is to move toward more future-predictive, future-orientated KPIs versus ones that simply confirm that an organization made a wrong move. “That doesn’t help you very much,” he said.
The panel, which discussed the evolving role of the CFO, also included Harmit Singh, executive vice president and CFO at Levi Strauss & Co.; Alka Tandan, CFO at Gainsight; and Kae Arima, vice president of finance at Workday. The conversation revolved around how KPIs are changing in the digital era and how CFOs must shift their perspective.
Where Is the Juice Worth the Squeeze?
As data becomes easier to collect and analyze, business leaders are turning to measurement, instrumentation, and analytics to gain insights around performance. They’re also assessing the portfolio of KPIs across the enterprise to see how specific metrics correlate. For instance, does a positive employee experience correspond to higher customer lifetime value? How do both of those KPIs affect the bottom line?
Looking at a broader portfolio of KPIs lets leaders understand where work is producing the most valuable results. For example, going beyond gross customer retention rates to NRR helps leaders understand which customer segments are stable, which ones are growing—and how much effort it takes to cultivate that growth.
“Especially in an environment where money is now a lot more expensive and it takes a lot more money to acquire a new customer, looking at your current customer base and growing it that way becomes a lot more efficient,” Tandan said.
Taking a more holistic view of data can also help leaders see which teams are doing the most to achieve business goals. Determining what portion of customer lifetime value growth can be attributed to sales, customer success, and operations, for example, offers insights that could inform future strategies and investments.
How Do You Get Hard Numbers?
Going forward, CFOs will need to more actively identify what attributes are associated with success, so the organization can update and monitor KPIs accordingly. But getting there requires access to reliable, real-time business intelligence—and data doesn’t flow freely across many organizations.
“For something like customer lifetime value, finance is really dependent on the sales organization or the marketing organization to share that data with them. And that’s not always easy,” Arima said.
Singh recounted his experience during his early days at Levi’s, which was a highly customized systems, applications, and products shop when he came on board. Each region had its own enterprise resource planning (ERP) tool and the company had more than 10 data warehouses.
“And so the data didn’t necessarily talk to each other, and people were using different ERPs that didn’t talk to each other,” Singh said. At the time, he suggested moving the company onto a single ERP system, but he was told it would be a career-limiting move and that he should focus on turning around the company first. So, he moved the data into one warehouse that is now being converted into a single ERP system on the cloud.
“I told my technology folks—including the board because it’s a major investment—that the success of the ERP is not going to be driven by the technology,” Singh said. “It’s going to be driven by the data unlock and the data governance that is going to happen.”
Who Owns All That Data?
Real-time data platforms can also boost performance on the front lines. “We connect with our consumers either through retailers or directly in our stores,” Singh said. “So, arming our retail associates with data and empowering them to make decisions based on data is critical.”
Giving employees information about customer buying trends could help them focus their attention on the right upselling decisions. It also helps store managers see where their location may be underperforming and find ways to improve. Store managers can also input their own observations on what’s working and what isn’t into company apps that associates can access.
However, giving teams access to customer and operational data requires strong data governance—and agreement across the enterprise. But leaders often disagree about who owns particular KPIs, how they should be shared, and who is accountable, which means CFOs will need to play a larger role in closing the gap and arbitrating conflict. That’s been the case at Gainsight, where Tandan says she has taken on the responsibility for data validation. This helps ensure there is a single source of truth the executive team can work from.
The organization also identifies which executives are responsible for key metrics and creates a one-page strategic plan for each employee based on the KPIs and the executives responsible for them.
“So every single employee—if they’re attached to that executive—has a piece of [that metric],” Tandan said.
Regularly reviewing KPIs to ensure they’re in alignment with current business conditions is critical, Tandan said. That way, CFOs can ensure that their organizations remain relevant in a rapidly changing economic environment.
Watch the Fortune webcast: “The Emerging CFO: Rethinking KPIs in the Digital Era.” This blog post was originally published on the Workday blog.
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