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 today 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, as well as interviews with 17 executives leading AI initiatives in a broad range of industries. Organizations 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.
“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 coauthor. “I was surprised and disappointed by how many organizations 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 coauthor 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 organizations to reassess their definition of success and how it is measured. Sixty percent of leaders believe that they need to improve their organization’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 organizations 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. Organizations using AI to create new KPIs realize 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 synthesize 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 optimize performance.
“On one level, AI-enriched KPIs represent a significant advance in what managers can measure and how performance is measured,” said David Kiron, editorial director for research at MIT SMR and report coauthor. “They also invite organizational 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 organizations understand, define, and pursue performance excellence. The report details the following steps that organizations must take to make their smart KPIs operationally, organizationally, and strategically more valuable:
- Realign data governance to enable measurably smarter KPIs.
- Establish KPI governance systems.
- Use digital twins to enhance key performance metrics.
- Prioritize cultural readiness and people-centric approaches.
- Ensure strategic alignment with smart KPIs.
“Smarter KPIs powered by AI have become sources of strategic differentiation and value creation,” said François Candelon, Global Director of the BCG Henderson Institute and a coauthor of the report. “This is not mere hype; this is what AI makes possible. The design, governance, oversight, and evolution of AI-enhanced KPIs is now a top leadership priority.”