Weekly Business Insights from Top Ten Business Magazines | Week 312 | Strategy & Business Model Section | 1

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Strategic Alignment With AI and Smart KPIs

By David Kiron et al., | MIT Sloan Management Review | September 05, 2023 

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Aligning operations with strategy is a critical leadership task. Turbulent market conditions, agile competitors, and ongoing demands to digitally upgrade operations and processes make strategic alignment more challenging to manage. Digitally savvy leaders are addressing the alignment challenge by improving how they use and develop KPIs. 

Drawing on a global survey of more than 3,000 managers and 17 executive interviews, the authors find leaders across the business spectrum using AI to enhance how KPIs are prioritized, organized, and shared. These enhancements have a direct, measurable effect on strengthening strategic alignment. These leaders also deploy AI to improve the accuracy, detail, and predictive capabilities of KPIs themselves. The improvements individually and collectively generate greater situational awareness and improve how corporate functions work together to achieve strategic outcomes. 

Leaders acknowledge that they need new measurement capabilities and improved metrics to better anticipate and navigate strategic opportunities and threats.  They recognize that new AI-based measurement abilities can deliver new performance insights and metrics, strengthen alignment, and improve outcomes. 

As KPIs evolve, their contributions to strategic alignment evolve as well. Research suggests that there are three ways that AI-enriched KPIs improve on metrics that simply track performance. These smart KPIs better describe the world as it is (ongoing and past performance) and better anticipate how it likely will be (future performance). In some cases, smart KPIs also indicate what can or should be done to promote better outcomes.

1. Smart Descriptive KPIs. These KPIs synthesize historical and current data to deliver insights on what happened or what is happening. They provide a deeper understanding of performance gaps and their causes, leading to better KPI creation or a better understanding of KPI relationships.
2. Smart Predictive KPIs. These KPIs anticipate future performance by producing reliable leading indicators. They provide visibility into potential outcomes, thus enabling preemptive actions to mitigate risks or leverage opportunities.
3. Smart Prescriptive KPIs. Beyond description and prediction, prescriptive KPIs are enriched with AI recommend actions. They not only indicate performance gaps but also suggest corrective measures. 

Based on research, the following actions will help leaders use AI to improve how they use and develop KPIs and how they align operations with strategy.  treat KPIs as assets, encourage greater visibility and transparency around performance measures, and map KPI relationships and connections.

3 key takeaways from the article

1. Aligning operations with strategy is a critical leadership task. Turbulent market conditions, agile competitors, and ongoing demands to digitally upgrade operations and processes make strategic alignment more challenging to manage. Digitally savvy leaders are addressing the alignment challenge by improving how they use and develop KPIs. 
2. Researchs find leaders across the business spectrum using AI to enhance how KPIs are prioritized, organized, and shared. These enhancements have a direct, measurable effect on strengthening strategic alignment. These leaders also deploy AI to improve the accuracy, detail, and predictive capabilities of KPIs themselves. The improvements individually and collectively generate greater situational awareness and improve how corporate functions work together to achieve strategic outcomes. 
3. The following actions will help leaders use AI to improve how they use and develop KPIs and how they align operations with strategy:  treat KPIs as assets, encourage greater visibility and transparency around performance measures, and map KPI relationships and connections.

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Topics:  Strategy, Business Model, Key Performance Indicators, Technology