Metrics are how successful businesses manage themselves and keep score. Which metrics to use is an ongoing discussion as leadership teams seek insight into the organization's health and effectiveness. Why? Because what gets measured gets done. The ongoing search for the optimal mix of metrics or Key Performance Indicators (KPIs) has led to several performance measurement innovations.
In the early 1990s, Robert S. Kaplan and David Norton introduced the concept of the Balanced Scorecard. The framework covers four broad perspectives:
Notably, the framework began a pivotal shift for managers to move beyond traditional financial measures. Leaders now had a vocabulary for the key drivers of financial outcomes they could hold themselves accountable for. An important objective was to create more than a snapshot of financial results by creating actionable insights into the drivers of economic outcomes.
A decade later, Fred Reicheld introduced the Net Promoter Score (NPS) in an article titled: “The One Number You Need to Grow.” The performance measure innovation was quickly adopted by Business-to-Consumer (B2C) companies and, soon after, Business-to-Business (B2B) organizations. NPS was and still is leveraged to augment customer perspective metrics in the Balanced Scorecard. In the 20 years since, NPS’s correlation with growth has ensured its broad adoption. It has become the gold standard metric for Software-as-a-Service (SaaS) investors as both a leading and lagging indicator of durable growth.
However, while investors may consider NPS an essential measure for evaluating companies, business operators themselves have been moving away from reliance on this widely used metric. According to Stephen Fulkerson of the Technology & Services Industry Association (TSIA), while NPS has value in assessing Brand Reputation, it’s less useful when it comes to operating decisions.
Stephen shared with Emilia that in interviews conducted with TSIA members, they reported that an over-reliance on NPS results in limitations to growth. The conversation highlighted that companies see NPS as one—but not the only—source of voice of the customer insight at any given point in time.
Limitations, according to Stephen, include:
· The inability to forecast Renewals or Retention
· Limited Return on Investment
· Lack of reliability
Actionable insight iswhat useful metrics offer management teams. If NPS doesn’t fully meet thechallenge, what might?
Stretching Beyond NPS
Over the past several years, NPS’ perceived limitations have pushed managed services leadership teams to find more meaningful metrics. In an attempt to fill the gap, they are increasingly relying upon Customer Satisfaction (CSAT) and Customer Experience Sentiment (CES) to generate more actionable insights, to break down organizational silos and to support decision making.
What Stephen and his TSIA colleagues have heard is that even CSAT and CES don’t effectively support accurate forecasting of Customer Retention or Renewal Rates. More accurate renewal and retention forecasting requires a different set of questions.
What is the ‘New’ Innovative Metric to Consider?
To address the “actionable metric” gap, TSIA has developed a new metric: Kore Score(KS). The KS intent is to enable management teams to measure and drill down into four distinct issues:
The calculated score for each of the four areas is averaged to create an overall Kore Score that merits a place on an Executive Dashboard but, importantly, allows leaders to drill down into issue specificity if the higher-level KS begins to shift.
For management, the KS elements have several benefits:
No single measure is sufficient for making all management decisions, but the potential value of KS is its capacity to provide critical insight into the key drivers of sustained and profitable growth. It’s in the early days as TSIA begins to roll this out,but the potential value of KS should have management teams curious about itsapplication.
About the Authors:
Andrew Green, Managing Partner, Broad Reach Growth
Andrew works with CEOs inlower mid-market managed service/professional service companies to accelerateEBITDA growth. In his work with CEOs and their teams, Andrew combines theanalytical and project execution rigor developed during a career in consultingwith the pragmatic perspective of a former CEO with two successful exits..
Prior to Broad ReachGrowth, Andrew was a Senior Partner at the management consulting firm Kearney.There, Andrew worked with clients across a spectrum of industries to define andimplement value building strategies and operational improvements. Andrew alsoserved on the firm’s North American Management Committee and led the firm’sNorth American Strategy & Organization practice. Andrew remains a KearneyPartner Emeritus.
Andrew currently serves asa Senior Advisor to Strategen Consulting, Lifeboat Ventures and the ChasmInstitute. He earned a BA from Brown University and an MBA from HarvardBusiness School.
EmiliaD’Anzica, Founder & Managing Partner, Growth Molecules™
Emilia is the founder and managing director of GrowthMolecules, a management consulting firm focused on protecting and growing revenue. The company aims to help organizations increase profit while maximizing customer value. Emilia has amassed more than 25 years of growth strategy experience in roles as a fractional Chief Customer Officer at several companies and as Vice President of Customer Engagement at WalkMe, as Director of Client Service Operations at BrightEdge, and as Director of Customer Success at Jobvite.
