Weekly Business Insights from Top Ten Business Magazines | Week 295 | Strategy & Business Model Section | 3

Extractive summaries of and key takeaways from the articles curated from TOP TEN BUSINESS MAGAZINES to promote informed business decision-making | Week 295 | May 5-11, 2023

AI Is Helping Companies Redefine, Not Just Improve, Performance

By Michael Schrage et al., | MIT Sloan Management Review | May 08, 2023

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Performance measurement has been a top management imperative ever since Frederick Winslow Taylor’s seminal work “Principles of Scientific Management” revolutionized business processes more than a century ago. More recently, the purpose of measuring performance has expanded well beyond efficiency and now includes the strategic optimization of a range of business functions and outcomes.  Thanks to radical improvements in artificial intelligence, the purpose and practice of measurement are expanding even further. Executives are working with machines to develop new perspectives on what drives performance and how best to measure it.  Three practical and valuable but little-discussed business implications and benefits of using AI both to generate and refine KPIs are:

1. Smart KPIs That Learn, Not Just Track.  Combining AI and KPIs can improve the leadership team’s understanding of its own performance criteria. In addition to unearthing new KPIs and refining KPI portfolios, AI-powered KPIs can go beyond tracking progress to drive action. AI-driven KPIs shift the emphasis and locus of value from tracking progress on given strategic metrics to learning what the best metrics are. Where legacy KPIs are retrospective, smart KPIs are forward-looking; where legacy KPIs are focused on fixed targets, smart KPIs are adaptive. 
2. Governing Measurement: KPIs for KPIs.  KPIs measure performance, but what measures the performance of KPIs? Just as leadership should assess employee performance on a regular basis, they need to routinely assess their KPIs, individually and collectively, to ensure successful enterprise outcomes.  While achieving a parsimonious set of KPIs can force uncomfortable decisions, it also clarifies strategic priorities.  Unlike the periodic governance of legacy KPIs managed by humans alone, the governance of smart KPIs is increasingly being managed by machines and humans together. This type of KPI governance is essential to ensuring that KPIs improve over time, both individually and collectively. 
3. Improved Alignment via Shared Smart KPIs.  No KPI is an island. Whether directly or indirectly (or both), enterprise KPIs influence one another. The majority of KPIs in the majority of organizations are managed within distinct and disconnected silos, operational realities typically reveal underlying overlaps between business units, processes, and functions.  AI is particularly well positioned not only to uncover overlaps among KPIs but to help resolve the resulting trade-offs and inconsistencies. AI-generated KPIs can lead the way to shared KPIs that drive improved organizational alignment. Unlike legacy KPIs, smart, shared KPIs enhance organizational alignment by facilitating enterprise data sharing and visibility, as well as cross-functional collaboration.

3 key takeaways from the article

1. Performance measurement has been a top management imperative ever since Frederick Winslow Taylor’s seminal work “Principles of Scientific Management” revolutionized business processes more than a century ago. More recently, the purpose of measuring performance has expanded well beyond efficiency and now includes the strategic optimization of a range of business functions and outcomes.  
2. Thanks to radical improvements in artificial intelligence, the purpose and practice of measurement are expanding even further. Executives are working with machines to develop new perspectives on what drives performance and how best to measure it.
3. Three practical and valuable but little-discussed business implications and benefits of using AI both to generate and refine KPIs are:  Smart KPIs That Learn, Not Just Track; Governing Measurement: KPIs for KPIs; and Improved Alignment via Shared Smart KPIs.

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Topics:  Performance Measurement, KPIs, Artificial Intelligence