Most organisations have Key Performance Indicators or KPIs for top level performance-tracking – financials of course, but often other factors like sales growth and staff turnover. And many set up KPI systems for key functions, like delivery lead-times or customer-service satisfaction. Commonly, “traffic lights” show if an indicator is in an OK range (green), a worrying range (orange), or really bad (red).
Indeed, something of an industry has built up to help organisations develop and maintain their KPI systems. Organisations like the KPI Institute offer huge libraries of indicators for different types of organisation, and consultancies, of course, are happy to sell advice on the issue.
But here’s the thing – a Dynamic Business Model (DBM) is a digital twin that matches not only how performance changes over time, but also how everything that drives that performance changes. So by definition, it must include all KPIs that could help assess and manage that performance.
Now a high level DBM may include a seemingly small number of elements. The example explained in What is a Dynamic Business Model? (an IT-support provider for SMEs) has fewer than 30 items, for example. And only a fraction of those are KPIs. OK, it’s a simple business, but even so, surely – you must wonder – we need more KPIs than that?
Well, no we don’t. Everything that drives that organisation’s performance is in that model. That means that the model is the KPI system that management needs. But this one has some big advantages:
- You can be confident that the model’s elements are correctly chosen, and only the necessary items. The rigorous process of building a DBM guarantees this. You don’t have to trade opinions about what should or should not be in the KPI-set, or employ expensive consultants to tell you what you need.
- You can see how all the indicators are changing, not just what their current and recent values have been.
- You can see why each item’s value has been changing as it has, because of the validated causal linkages in the model architecture.
- You can see how future values for all indicators will likely change. So you know, for example, if an indicator that is currently OK (green) will be orange or red before long, and crucially you know when that may happen and how bad it could become. More happily, the DBM will sometimes tell you that a problematic indicator is on trend to become OK again.
Sure, for larger, more complex organisations, the DBM will be larger and show more KPIs. But then further advantages show up:
- The model can be ‘factored’ or assembled from parts – product development; marketing; customer-support; production and so on. So you get a high-level KPI-view, underneath which may be several sub-models giving more detail. Your top-level model may just show customer win-rates, loss-rates and purchase rates, while the detailed sub-model for the marketing and sales function also shows the drivers of those rates.
- Standard KPI systems come in sections for different functions or business-units, of course. But with a digital-twin business model, all those sub-model parts are still integrated and mutually consistent. The service department’s model, for example, knows how demand will likely grow, week by week, from the marketing units model of plans to launch a new product. And the HR unit’s model knows what the service unit’s growth implies for hiring needs … and if that hiring runs behind schedule, the service and marketing units know how to modify their plans so the business keeps running smoothly.
What the business gets, then, is that holy grail – truly “joined-up management“.
People often cannot believe that such digital-twin business models are possible. But not only are they possible, they are entirely achievable and practical. And they are NOT “more work” for the organisation or anyone in it, because they replace effort that is currently deployed on doing more time-consuming and less useful activities – like maintaining those spreadsheet KPI systems!
Want to learn how to build and use digital-twin business models? See the extensive, self-paced online courses for leaders and for analysts/consultants at sdcourses.com.