The majority of businesses are falling behind in employing predictive performance indicators which could give them a decisive competitive advantage over their rivals, according to a recent study by research firm Gartner Inc.
In a survey conducted among 489 business and IT leaders during the fourth quarter of 2013, Gartner found that only 71 per cent of respondents understood which key performance indicators (KPIs) are critical to supporting their business strategy. The survey also revealed that only 48 per cent of business and IT leaders are able to access metrics that help them understand how their work contributes to strategic KPIs, and 31 per cent said they had a dashboard that showed them these metrics.
The findings show that businesses need a digitized business process and new measures to help them assess performance and predict risks, according to Samantha Searle, research analyst for Gartner.
“Using historical measures to gauge business and process performance is a thing of the past,” she said. “To prevail in challenging marketing conditions, businesses need predictive metrics – also known as ‘leading indicators’ – rather than just historical metrics (aka ‘lagging indicators’).”
While traditional performance assessment methods rely on studying historical data, predictive performance metrics involve applying analytics to sift through vast amounts of data to find patterns, trends and correlations that could help in modeling, simulating and forecasting potential outcomes.
The method is used to answer critical questions such as:
- What measures drive business and which do not?
- Where do we need to improve?
- Are efforts aligned with the business strategy?
- How can we adjust initiatives and strategies?
Predictive risk metrics, said Searle, are particularly important in mitigating and even preventing the impact of disruptive events on profitability.
Organizations that use predictive business performance metrics will increase profitability by 20 per cent by 2017, according to Gartner.
There are a growing number of organizations now adopting intelligent business process management suites (BPMS) and operational intelligence platforms that increase the successful and proactive response to business disruptions. These technologies use predictive analytics to identify relevant metrics.
Gartner estimates that the BPMS market will reach $2.8 billion in 2014, an 8.8 per cent growth from 2013.
However, in discussions with many business and IT leaders, Gartner analysts found that many of them often misinterpret the term KPI and do not have predictive measures in place.
“They persist in using historical measures and consequently miss the opportunity to either capture a business moment that would increase profit or intervene to prevent an unforeseen event, resulting in decreased profit,” said Searle.