Strategy & Best Practices

How Manufacturers Can Define Digital KPIs that Matter

By Ideas @ AppDirect / August 16, 2018

In the manufacturing sector, digital transformation is a hot topic. However, despite its novelty—or maybe because of it—manufacturers are having a hard time determining the impact of their digital initiatives. In fact, BI Global has found that 40 percent of manufacturers struggle with defining the value of their digital products and services, as well as aligning on a sales strategy that complements their core business.

More often than not, these issues stem from a company’s problems with defining clear goals for their digital initiatives. Choosing the right key performance indicators that will have a positive impact is the first hurdle. To do this effectively, manufacturers need to think beyond KPIs that may have been used in the past. “Traditional KPIs are poor indicators of the effectiveness of ongoing digital efforts,” writes Stephanie Overby at CMO.com. “They are best-suited to measuring long-term impact, revealing improvements annually or quarterly. Today’s marketplace is changing too rapidly for such horizon-gazing.”

"Traditional KPIs are poor indicators of the effectiveness of ongoing digital efforts."

Instead, manufacturers should focus on KPIs that fit into three categories: operational improvement, customer experience, and financial impact. Moreover, companies should select metrics that can be measured frequently. “[S]enior leadership needs to be aligned around what they’re trying to achieve and, more specifically, they need to organize around business outcomes they can measure every week—in some cases, daily,” says Shamim Mohammad, CIO of CarMax, a company that has seen digital transformation success.

So what are the KPIs that matter? For the first year, success metrics should be focused on customer traction and customer satisfaction. These include KPIs such as:

• User adoption rate: How fast customers are adopting your digital products and services.
• Sales platform interaction rate: How many—and how often—customers are buying your digital offerings.
• Net Promoter Score (NPS): How many customers would recommend your digital offerings to others.

While cost is always a concern, at this stage it’s too early to worry about return on investment. Once your KPIs indicate that your digital initiatives have user traction, then the focus should shift to the long-term goal of achieving solid ROI.

Cost is always a concern, but don't focus on ROI too early.

Before you can determine the right KPIs, however, you must ensure that your business is aligned around your manufacturing 4.0 initiatives. If you missed our previous blog post on this topic, you can click here to read it. To learn about what comes next, watch our “Success Beyond the Product” on-demand webinar to explore how to define new models around your digital business.

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