You have likely heard of the word-guessing game Wordle. If you are on social media, you might even be tired of seeing the related green and yellow grids on your feed each day. You might not know, however, that a few folks have discovered a sneaky way to cheat.
Apparently, the Wordle word-of-the-day has been showing up on the list of top searches on certain online dictionary sites around 9:00 am US east coast time lately. So, if you are so inclined, you could scan that list for 5-letter words before playing and have a good idea what to guess.
This example demonstrates how an organization might use indirect measurement (or a “proxy” measure) as a KPI. An indirect measure can be used in cases where it is not practical to directly measure an intended result or goal and is based on a hypothesis around correlation or contribution. Metaphorically speaking, let’s say the word-of-the-day is something an organization wants to accomplish but is finding it difficult to measure directly. You could create a KPI around the number of searches for any particular 5-letter word on the dictionary sites and then use that data to inform your word-guessing decision. The hypothesis is based on an expected correlation between the dictionary searches and the game.
It also demonstrates the imprecise nature of indirect measures. The dictionary search measure informs my word-guessing decision, but I can’t assume that there isn’t some other reason why a 5-letter word might show up on the list. Direct measurement is almost always preferred. If we want more sales, the direct sales dollars tell us what we want to know precisely. Once I shift to something that is indirect, like web traffic on my shopping cart website, my measurement becomes less reliable and requires more work to connect to the intended result.
But in the management world, many times a direct measurement is not obvious. A non-profit that works in advocacy might not be able to identify tangible intended results of their work. Teams that succeed through collaboration and innovation sometimes end up with softer, more indirect, measures of success. Or in the example above, maybe I want to measure the web traffic to better understand what is contributing to sales results. The point is that sometimes indirect measurement is useful, as long as you understand where the weaknesses are.
If you would like to learn more about indirect measurement or our general approach to KPI development, please consider our KPI Professional certification program.
Image source: Wikipedia
David Wilsey is the Chief Executive Officer with the Balanced Scorecard Institute and co-author of The Institute Way: Simplify Strategic Planning and Management with the Balanced Scorecard.