For many organizations, key performance indicators are “key” in name only, tracked primarily to meet compliance regulations or provide a retrospective analysis. What’s needed are smarter KPIs, said Michael Schrage, a visiting research fellow at the MIT Initiative on the Digital Economy.

As Schrage wrote in a recent article and accompanying report in Sloan Management Review, advances in machine learning and predictive algorithms can turn KPIs into prescriptive indicators that guide strategy, rather than metrics that simply help managers keep score.

When applied to digital transformation efforts, KPIs can drive business strategy and provide a distinct competitive advantage, Schrage said. Because algorithms can “learn” from previous results to improve future performance, smart KPIs will only…

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