New research reveals that 90% of organisations using AI to create KPIs report KPI improvement.
A new report by MIT Sloan Management Review and Boston Consulting Group finds that over 50% of business leaders acknowledge the need for improved KPIs, but only a third of organisations are leveraging AI to create them
JOHANNESBURG, June 26, 2024—Despite tremendous advances in analytics and AI capabilities, key performance indicators (KPIs) increasingly fail to take advantage of them to deliver the information and insights leaders need to succeed. However, according to a new report released by MIT Sloan Management Review (MIT SMR) and Boston Consulting Group (BCG), an increasing number of companies are using AI to make KPIs more forward-looking and connected, dramatically improving legacy performance metrics.
The report, titled The Future of Strategic Measurement: Enhancing KPIs with AI, presents findings from MIT SMR and BCG’s seventh annual global research study on AI and business strategy. It is based on a global survey of more than 3,000 respondents representing more than 25 industries and 100 countries including South Africa, Nigeria, and Kenya, as well as interviews with 17 executives leading AI initiatives in a broad range of industries.
Organisations typically use KPIs as benchmarks to evaluate progress on a wide variety of business objectives, such as sales growth, customer satisfaction, and operational efficiency. This report finds most companies have yet to exploit the capabilities of AI to measurably improve their most important metrics.
North America is the global leader in performance innovation while Northeast Asia takes the lead in AI adoption at scale. Half (55%) of African leaders surveyed are identifying news ways to perform better, while 59% confirmed that they have a high level of AI adoption.
“Forty-one percent of leaders in Africa deploy AI in IT, 20% in finance and accounting and 19% in supply chain management, while 67% view AI as a core element of their strategy,” says Nanda Padayachee, Associate Director at BCG, Johannesburg.
“We learned that smart leaderships see AI as essential to making their KPIs smarter, more predictive, and more insightful,” said Michael Schrage, a research fellow at the MIT Sloan School of Management’s Initiative on the Digital Economy and report co-author. “I was surprised and disappointed by how many organisations haven’t bothered to use technology to revisit and revise their most important metrics.”
“While the majority of AI efforts have centered on how to improve performance using the technology, this report sheds light on how AI can completely transform how companies actually define and measure performance to begin with,” said Shervin Khodabandeh, a senior partner and managing director at BCG and a co-author of the report. “It goes beyond improving existing KPIs to fundamentally reimagining what those KPIs could be.”
AI-enhanced KPIs lead to better outcomes
Shifting economic conditions, evolving customer expectations, and digital transformations require organisations to reassess their definition of success and how it is measured.
Sixty percent of leaders believe that they need to improve their organisation’s KPIs to improve decision-making, but only about one-third (34%) are using AI to make their performance metrics more intelligent, adaptive, and predictive.
Nine out of 10 organisations with AI-enhanced KPIs agree or strongly agree that their KPIs have been improved by the technology. The survey data affirms that companies using AI to create new KPIs see an array of business benefits compared with those companies that don’t use it.
Organisations using AI to create new KPIs realise a 4X increase in collaboration between employees and are 3X more effective at predicting future performance, 3X more likely to see greater financial benefit, and 2X more likely to see greater efficiency.
The three types of smart KPIs
The report delineates three ways that AI-enriched KPIs improve on legacy
metrics that simply track performance. First, smart descriptive KPIs synthesise historical and current data to deliver insights into what happened or what is happening.
Smart predictive KPIs anticipate future performance, producing reliable leading indicators and providing visibility into potential outcomes. They also identify patterns that other techniques or humans cannot, allowing them to draw on a richer reserve of potentially counterintuitive patterns. Lastly, smart prescriptive KPIs use AI to recommend actions that optimise performance.
“On one level, AI-enriched KPIs represent a significant advance in what managers can measure and how performance is measured,” says David Kiron, editorial director for research at MIT SMR and report co-author. “They also invite organisational change: Business managers and technologists need to work together in new ways to develop and use the metrics that matter most.”
Implementing and managing smart KPIs holistically
Shifting from legacy KPIs to algorithmically informed KPIs disrupts how organisations understand, define, and pursue performance excellence. The report details the following steps that organisations must take to make their smart KPIs operationally, organisationally, and strategically more valuable:
Realign data governance to enable measurably smarter KPIs.
Establish KPI governance systems.
Use digital twins to enhance key performance metrics.
Prioritise cultural readiness and people-centric approaches.
Ensure strategic alignment with smart KPIs.
“Adopting AI and Gen AI to create and sustain organisational coherence and performance through smart KPIs is a natural next step for organisations. Legacy KPIs rarely reflect the dynamism of modern organisations, and these algorithmic innovations have been demonstrated to engender greater trust and buy-in, as performance is redefined,” says Padayachee.