New report from MIT and BCG shows why forward-thinking CFOs will be using AI to improve—and create better—KPIs
Good morning. Is your business operating with decades-old KPIs? You may want to consider an AI reboot.
A new report copublished by MIT and Boston Consulting Group (BCG) on enhancing key performance indicators with AI focuses on a broad array of case studies and surveys on how AI-based machine learning and predictive analytics are super-powering KPIs.
“What we're saying is, you've invested hundreds of millions of dollars in building data capabilities, technology capabilities, AI algorithms, measurement capabilities—you can direct some of these investments and some of these capabilities to not just improving KPIs, but to redefining them,” Shervin Khodabandeh, a managing director and senior partner at BCG and coauthor of the report, told me.
The report’s findings are based on a global survey of more than 3,000 respondents representing more than 25 industries and 100 countries. Perhaps surprisingly, only 34% of the organizations surveyed have used AI to reevaluate KPIs, but 90% of those that did reported improvements. The report also showed that the firms assessing the quality of KPIs with AI were three times more likely to create a financial benefit.
The researchers found that AI-enabled KPIs strongly impact three aspects of alignment: Teams are more likely to agree on which KPIs to prioritize; KPIs interlinked across a company can be optimized as an ensemble, rather than in silos; and teams are more likely to share information when needed, increasing accountability and alignment.
“Something I think CFOs are going to have to care a lot about: The bespoke databases that we use to augment our foundational models to make our KPIs smarter,” Michael Schrage, a research fellow at the MIT Sloan School Initiative on the Digital Economy and coauthor of the report, told me.
I also talked with Schrage about the appendix of the report, which includes an interesting experiment using ChatGPT: What if a firm could tap into expertise from all divisions to inform its KPIs related to customer lifetime value? Going a step further, imagine a CLV-focussed conversation among direct marketing legend Mary Kay, expert copywriter Mary Wells Lawrence, and AI pioneer Kai-Fu Lee—with OpenAI founder Sam Altman and advertising guru David Ogilvy chiming in for good measure. Well, this actually happened in a recent ChatGPT 4 session devised by Schrage.
“I basically created dialogues between literally the customer lifetime value KPI and the churn management KPI,” he explained. “I turned the KPIs into a persona, and this turns out to be something ChatGPT does quite well.”
Schrage’s simulated chat among all-star execs produced a transcript that includes insights and recommendations for getting the most out of CLV. The sample session was done as both a provocation and a way to think out loud, he told me.
“The value comes from putting familiar things in novel contexts, and it’s easy to see how playing with perspectives can lead to actionable insights or hypotheses worth testing,” he said. “I definitely see marketing, manufacturing, supply chain, and financial folks using these value-added formats to upgrade their existing KPIs and imagine new ones.”
Schrage said that “GenAI KPIs” are on the horizon in finance. “FP&A is going to be used to create generative stress-testing scenarios for the various sales revenue and customer experience projections that the various lines of business have,” he said. Finance teams should be exploring generative AI to see if it can "help generate more and better options for you," he added.
You can read my complete article here.
Sheryl Estrada
sheryl.estrada@fortune.com
María Soledad Davila Calero curated the Leaderboard and Overheard sections of today’s newsletter.
This story was originally featured on Fortune.com
