KPIs Are Hard To Understand, says CEO of NVIDIA
Jensen Huang, the CEO of NVIDIA (market cap over $2,9 Trillion!!), says Key Performance Indicators (KPIs) are hard to understand.
In a recent interview at Stanford University, he expressed that while for example, “Gross Margins” are important, they are not KPIs but results.
Instead, he advised looking for something that serves as an “Early Indicator Of Future Success”:
Understanding KPIs
KPIs are metrics used to evaluate the performance of a company or a project.
They are quantifiable measures that help in making decisions and tracking progress with a goal in mind.
For a comprehensive guide on the most important metrics, check out my article on top metrics you should know.
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Limitations of Traditional KPIs
However, they can be complex and may not always provide a clear picture of the current situation or future potential.
A survey by MIT Sloan Management Review found that only 23% of executives say their organizations are very effective at using KPIs.
The Power of Early Indicators
Jensen Huang's suggestion to look for early indicators of future success is a more proactive approach—which I find super interesting for Customer Success!
This means focusing on metrics that can predict future outcomes rather than just measuring past performance.
Research by Harvard Business Review suggests that predictive metrics can be up to 86% more accurate in forecasting business outcomes compared to traditional lagging indicators.
Examples of Early Indicators
For instance, if a company is investing in research and development, tracking the number of patents filed could potentially be an early indicator of potential future success.
Studies show that companies with higher R&D spending and patent filings tend to outperform their peers in long-term stock returns.
NVIDIA's Approach to Early Indicators
In the context of NVIDIA, which is a leading company in the field of artificial intelligence (AI) and graphics processing units (GPUs), early indicators could include the number of AI startups engaging with the company, the adoption rate of their new technologies, or the performance of their AI chips in many different tests.
For more on how AI is transforming customer success, read my article on AI-powered customer success.
NVIDIA's AI-focused revenue grew by 141% year-over-year in Q2 2023, indicating the success of its strategic focus on AI technologies.
Benefits of Focusing on Early Indicators
That way, businesses can make more informed decisions and take proactive steps to improve their performance when they focus on early indicators, not necessarily KPIs that are based on “past” performance.
So, it's not just about measuring what HAS happened, but also about predicting what MIGHT happen in the future.
A McKinsey study found that companies that use predictive analytics are twice as likely to be in the top quartile of financial performance within their industries.
Applying Early Indicators Across Departments
While we've focused on early indicators in the context of customer success, it's important to note that this approach has universal relevance across different departments:
Finance: Tracking leading indicators of revenue, costs, and cash flow
Marketing: Monitoring early signals of changing customer preferences and campaign effectiveness
Operations: Identifying potential supply chain disruptions or quality issues before they escalate
HR: Detecting employee engagement and retention risks proactively
So, implementing early indicators across the organization can help companies develop a more holistic and forward-looking approach to decision-making.
Challenges and Solutions in Implementing Early Indicators
While the benefits of early indicators are clear, implementing them can present challenges:
Data silos: Break down barriers between departments to enable data sharing
Lack of buy-in: Educate stakeholders on the value and demonstrate quick wins
Resource constraints: Start small with high-impact indicators and scale gradually
Analysis paralysis: Focus on actionable insights tied to key business objectives
Overcoming these obstacles requires commitment from leadership, cross-functional collaboration, and a willingness to iterate and improve over time.
Competitive Advantage Through Early Indicators
For C-suite executives focused on strategic positioning, adopting early indicators can provide a significant competitive edge:
Faster response to market changes and emerging opportunities
More proactive risk management and mitigation
Data-driven decision-making aligned with strategic goals
Improved operational efficiency and resource allocation
The ability to anticipate and act on trends before competitors is key for long-term success and market leadership.
Gathering and Analyzing Customer Feedback for Early Indicators
While we've discussed different early indicators, it's key to have effective systems in place for gathering and analyzing customer feedback.
This data can serve as a rich source of early indicators.
Here are some key strategies:
Survey Design Best Practices:
Keep surveys concise and focused
Use clear, unambiguous language
Include a mix of closed-ended and open-ended questions
Personalize surveys with customer names and relevant details
Leveraging AI for Sentiment Analysis:
Use AI to process large volumes of feedback rapidly
Employ Natural Language Processing (NLP) to detect nuanced emotions and context
Gain real-time insights for timely action
Creating Effective Customer Feedback Loops:
Gather feedback through multiple channels (surveys, social media, support interactions)
Analyze feedback promptly using AI and manual review
Categorize feedback into actionable themes
Implement changes and communicate actions taken to customers
Turning Qualitative Insights into Quantitative Metrics:
Use text analysis to identify recurring themes
Assign numerical codes to qualitative responses
Create custom scoring systems for open-ended responses
Track changes in qualitative metrics over time to identify trends
Implementing these techniques will help you extract valuable early indicators from customer feedback, enabling more proactive and effective customer success strategies.
For a deeper dive into these strategies and more insights on leveraging early indicators for business success, check out my comprehensive guide: Beyond KPIs: The Executive's Guide to Early Indicators and Predictive Analytics.
Jeff Bezos on Customer Anecdotes vs. Metrics
Similarly, Jeff Bezos, co-founder and executive chairman of Amazon, says that if your customers’ anecdotes conflict with your metrics, then you should doubt your metrics.
Not because the data is wrong, but because you’re not measuring the right thing.
Right on the spot, isn’t it?
This aligns with my article on avoiding assumptions in customer success, which highlights the importance of listening to customers.
And That’s It
Balancing KPIs and Early Indicators
KPIs are important, but they are just one part of the equation.
A balanced scorecard approach, which includes both financial and non-financial metrics, has been shown to improve organizational performance by up to 25%.
Companies that effectively use predictive analytics and early indicators have been shown to achieve 5-6% higher productivity and profitability than their peers.
For more about essential metrics, check out my guide on SaaS metrics.
Call to Action
What do you think? How does your organization balance traditional KPIs with early indicators of future success?
Share in the comments below.
For more insights on customer success strategies and metrics, explore my ultimate guide to customer success managers and learn how to boost customer value with growth strategies.
I hope that helps.
-Hakan.