The power of KPIs in business development lies in their ability to measure success and in the potential to drive transformative change, writes Shearman & Sterling’s Siew Fong Yiap.
Business development professionals now live in an era where they are able to combine their seasoned intuition with data-rich KPIs to inform strategic decisions. By harnessing sophisticated analytics and real-time monitoring, KPIs serve as a powerful compass that guides the way to successful business development. However, like any tool, KPIs may also fall short of achieving their intended purpose if not designed or wielded properly.
Crafting compelling KPIs
Technological advancements and abundant data have provided the means to create a dizzying array of KPIs, making it easy to veer into the territory of “measurement for measurement’s sake”. To demonstrate that KPIs serve a purpose beyond just tracking numbers, it is crucial to select KPIs that are directly aligned with the firm’s strategic objectives and clearly articulate how each KPI contributes to the firm’s overall success. This often involves continuously communicating the benefits of KPIs to stakeholders and engaging them in a collaborative process to determine the most relevant and impactful metrics.
Prioritising quality over quantity can also avoid the perception of excessive measurement. A clear focus on the most critical metrics is easier to communicate, strengthens accountability and allows for greater adaptability in responding to changing markets. The core KPIs should ideally include a balance of both leading and lagging indicators to provide a more comprehensive view of performance.
Many business development KPIs are, in effect, lagging indicators which reflect past performance but may not provide sufficient insights to guide future decision-making or identify emerging opportunities.
To take one example, the client retention rate which measures the percentage of clients that continue to engage the firm’s services over a specific period, is a lagging indicator that reflects past client satisfaction and loyalty. However, a high client retention rate does not necessarily indicate the firm’s ability to attract new clients or expand its client base.
To assess future client growth, leading indicators such as the size, composition and conversion rates of the business development pipeline can provide more forward-looking insights. Focusing on leading indicators allows firms to detect emerging opportunities, client needs or market shifts and adjust their business strategies at an earlier stage.
Not everything that can be counted counts and not everything that counts can be counted
When assessing data availability and reliability, the challenge often arises in whether to allow available data to drive KPI selection or the selected KPIs to drive data collection. While both data availability and KPI selection influence each other, it is generally recommended that KPIs guide the type of data that is needed. Otherwise, the firm may end up with a set of metrics that do not contribute to meaningful outcomes. For example, it may be relatively easy to track the number of client meetings or quantity of pitch collateral produced, but quantity alone does not reflect the impact and engagement generated by such activities.
If the required data is not readily available through existing sources, alternative data collection methods will need to be explored, such as implementing new tracking systems or integrating data from external sources. In conducting this type of exercise, it will be important to consider factors such as feasibility, cost, resources and compliance issues. Where data availability poses significant challenges, the KPIs may need to be refined to align with the data that can be feasibly collected. This step ensures that the KPIs remain practical and achievable while still capturing the essence of the desired measurement.
Countering cognitive biases
While KPIs are designed to provide objective and measurable metrics for evaluating performance and guiding decision-making, our cognitive biases can derail their effectiveness. These deeply ingrained patterns of thinking that influence judgements and decision-making can skew our interpretation of data. It is therefore essential for decision-makers to understand and mitigate such biases.
For example, confirmation bias is the tendency to seek out and interpret information in a way that confirms pre-existing beliefs or assumptions.
As renowned British economist Ronald H. Coase said, “If you torture the data long enough, it will confess to anything.” Decision-makers must be encouraged to analyse data objectively and consider alternative perspectives that challenge pre-existing beliefs.
Availability bias occurs when decision-makers rely heavily on information readily available to them, resulting in a dataset that is too small and narrow. KPIs should be based on a broader range of data, ensuring that decisions are based on a more comprehensive picture of the situation.
Recency bias arises when decision-makers give more weight to recent events or data. A recent client win may be attributed to a new initiative, disregarding the fact that the relationship was built over several years. KPIs should include a combination of short-term and long-term metrics, allowing decision-makers to consider the broader context and trends over an extended period of time.
Avoiding unintended consequences
Goodhart’s law, formulated by economist Charles Goodhart to originally apply to monetary policy, states that “When a measure becomes a target, it ceases to be a good measure.” In other words, when KPIs are used as targets or incentives, they can become susceptible to manipulation by individuals or teams attempting to game the system at the expense of other important factors.
Instead of using KPIs solely as strict performance targets, it should be emphasised to stakeholders that KPIs are diagnostic tools for driving continuous improvement. Leaders and managers should foster a culture that focuses on long-term value creation rather than short-term KPI achievements. Having open discussions to review the ongoing relevance and effectiveness of existing KPIs also helps to promote collective accountability.
KPIs that typically involve quantitative measures must be supplemented with additional qualitative information. If a business development KPI primarily focuses on acquiring a certain number of new clients, there may be an undue focus on short-term transactional relationships instead of investing in long-term client relationships with higher-value clients. The metrics should be balanced out with qualitative assessments, such as client feedback to gain a more holistic understanding of performance. Using more multifaceted metrics also reduces the risk of individuals or teams focusing on optimising certain numbers. A bespoke ‘Client Lifetime Value Index’ could take into account a range of factors such as revenue contribution, repeat business, cross-selling, client satisfaction, strategic fit and relationship depth.
Measure, Iterate, Improve
Optimising KPIs for successful business development is inherently an iterative process, one that calls for a nuanced understanding of the relationship between measures and the desired outcomes they are intended to represent. Ultimately, the power of KPIs in law firm business development lies not only in their ability to measure success but also in their potential to drive transformative change. KPIs should include both leading and lagging indicators.
About the author
Siew Fong Yiap is the Director of Marketing & Business Development, Asia at Shearman & Sterling. The article represents the views of the author and not of their firm.
