The first 2024 Artificial Intelligence and Business Strategy report looks at how organizations are using AI to evolve their key performance indicators (KPIs) to better align with their strategies and deliver on enterprise goals.

Introduction

Legacy key performance indicators (KPIs) increasingly fail to deliver the information and insights leaders need to succeed. They fall short in tracking progress, aligning people and processes, prioritizing resources, and advancing accountability. These failures both undermine operational efficiencies and compromise the pursuit of strategic objectives and outcomes. Sophisticated organizations worldwide recognize that their KPIs need to be measurably smarter and more capable. They consequently invest in algorithmic innovations to make their performance metrics more intelligent, adaptive, and predictive. Smart KPIs powered by artificial intelligence (AI) become sources — not merely measures — of strategic differentiation and value creation.

Based on a global survey of more than 3,000 managers and interviews with 17 executives, we find AI being used to fundamentally redefine performance as well as enhance it. We see organizations using algorithms to challenge and improve enterprise assumptions around performance, profitability, and growth. Companies that revise their KPIs with AI are three times more likely to see greater financial benefit than those that do not. Smarter KPIs lead to better outcomes.

Online furniture retailer Wayfair, for example, used AI to reexamine the fundamentals behind its lost-sales KPI. “We used to think that if you lost the sale on a particular product, like a sofa, it was a loss to the company,” says CTO Fiona Tan. “But we started looking at the data and realized that 50% to 60% of the time, when we lost a sale, it was because the customer bought something else in the same product category.”

This insight led Wayfair to reengineer its lost-sales KPI into a more valuable metric. Whereas the company previously calculated item-based lost sales in response to price changes, it now also calculates category-based retention of sales in response to price changes. With the new, more accurate KPI, Wayfair is able to make more effective furniture recommendations that incorporate customer preferences — from price points to shipment times — when suggesting next-best offers. Logistically, the operations team aligned product placement decisions with distribution center and warehouse constraints to improve both customer and employee experiences. A smarter KPI measurably improved outcomes for everybody.