Clarity – Pick One Voice

17 05 2009

A few months ago during the Presidential inauguration, a concept I have kicked around a bit presented itself in a vivid example.  What stuck me was all the pomp and circumstance, all the background noise.  Did I really want to hear the opening prayer, the closing prayer, all the singing, and the poetry?  No, I wanted one thing – to hear the message this President was going to deliver on how he was going to set up his presidency.  Everything else was in a way, distraction.

As organizations, how often do we set a clear and concise goals for the organization and the individuals?  How many times do we repeat what someone else just said?

When we design KPIs for the organization, do we create a single measure for a goal and use other analytics for support?  Or do we create a number of ways to view the goal?  If we create many definitions, we allow for people to pick the one they want.  Use KPI design as a way to gain clarity of a goal.  Use Scorecard design to gain clarity of purpose.





Customer Lifecycle Value

1 05 2009

Depending upon on how well your know your business, a great discussion to have somewhat regularily is whether or not the customer lifecycle value is increasing or decreasing.  To achieve this we need to know a few things…

  • How much has the customer purchased from us?
  • How long are they likely to stay with us?
  • What does it cost us to serve them?

None of these are necessarily easy questions to answer, but that does not mean we should not talk about these items. Worst case, you should at least be looking at the average revenue and cost per client and see how those are changing. They are probably pretty good indicators of lifecycle value.  If we look at the trends of our revenues, costs (COGS & SGA), and profits per customer this should certainly indicate if we are doing better or worse.

While most of us do this to some degree, we probably also throw in a great deal many more variables and business rules and end up discussing various concepts. What about once a month or once a quarter getting all the department heads together and discuss progress on only these items.





Setting Targets

23 04 2009

Setting targets for Performance Indicators should be well thought through. This should not be an exercise in looking at the historical average (unless that is specifically relevant) and then apply 10% as the desired increase. You will want to review history, but you need to understand the goal. It is also important to define the KPI clearly.

For example, let’s use the retail market’s target of sales to sales last year. Retail has traditionally looked at this on a daily basis, as well as rolled up to the week, month, quarter, and year. I have two primary concerns with this:
  • If the weather was bad, we ran a promotion, or some other contributing factor, we may not know it and are really not comparing apples to apples. Additionally, what if last year was really bad? Beating that number doesn’t do much for us. 
  • If we are reviewing this on a daily basis, we loose institutional knowledge due to the repetition. What if we miss a day? Is there any repercussion? What if we miss three days in a row? What if we miss 10 days out of 14? Were there enough days in there of good performance to hide the fact that a trend is occurring?

What would make more sense to me would be to look at this number as a rolling average, or take the total sales for the last 365 days / 365 on a daily basis. Here we can very quickly identify a positive or negative trend, as we don’t have to look at numbers that swing wildly by the day of the week. Instead of talking about  a couple of bad days, we understand that even though we had a couple of bad days, the overall trend is above the goal. We can also integrate our sales goal and show it relative to the trend line.  





Scorecard or Fact sheet

10 04 2009

A common Scorecard design is to list a bunch of business facts – how many customers, total square feet, total employees, inputs, etc.  While these can be important business facts that executives need to know, they may not be manageable numbers.  By adding them to the scorecard, they take up valuable real estate and misdirect focus.  

As you are thinking through your scorecard design, take some time to consider if an item is a REAL KPI, or just a business fact.  Then design the scorecard to focus on objectives with potential links to business fact report(s).





Initiative Performance Indicators (IPIs)

8 04 2009

I made the argument that Key Performance Indicators and Key Risk Indicators are really the same thing, yet a nuanceworth discussion is initiative management.  We launch new factories, new products, training programs, marketing material, etc all the time, yet often do a sub-optimal job managing the project.  And execution waters down further as we try to manage the portfolio.

Even though initiatives are different than performance indicators, we need to account for their management within the same framework.  We need to understand our objectives, the priorities, resource constraints, milestones, etc in order to more proactively manage the business to achieve more strategic goals.  We need to enhance our ability to discuss our progress to our goals (both annual and strategic) and how all the KPIs and Initiatives are working together to achieve the end.





Key Performance Indicators (KPIs) & Key Risk Indicators (KRIs)

6 04 2009

Key Risk Indicators (KRIs) are an interesting concept, or twist to Key Performance Indicators (KPIs).  Instead of thinking of KPI measuring performance, think of a KPI as really just an indicator that the objective is at risk.  They are really the same thing.

If your objective is to Maintain Salesforce Effectiveness, a solid indicator might be revenue per sales rep.  If our revenue per sales rep is declining, it should be treated as a trigger for a broader discussion on the objective, not necessarily the KPI.  At the same time, we will want to analyze a number of other performance indicators for a deeper, richer discussion.

We look at KRIs for example employee turnover is this not just a performance measure against the objective Retain Great Employees?

In the end though, we are just splitting hairs by calling something a KPI or KRI.  It matters far more that we have the discussion about the objective(s), than trying to build separate processes to measure subtle nuances.





Scorecard Layout

26 03 2009

As you design your scorecard, you should consider the story it tells and the goal of the process. One of my favorite starts to a project began with this opening line from the client…

“I know we are doing it wrong, just be gentle when you tell us how bad…”

In this specific case, they were trying to build a cube for slicing and dicing within the Scorecard environment.  (And in all fairness to my client he had inherited this design and was trying to figure out how to use it).  They ended up with multiple depths of scorecards along a number of different dimensions.  Analysis was very difficult as that was not the purpose of the tool.  In the end we built a cube for this and found a management report that was perfectly designed for a scorecard.  This report walked through KPIs for new customers, existing customer purchases, average deal sizes, average debt.

Often a great place to start with Scorecarding is to find an existing management report.  Now the tool can easily be integrated into the management process.





Align to Customer Value

16 03 2009

On thing to consider in terms of developing KPIs (Key Performance Indicators) is how they are aligned to the customer’s wants.  All to often we ignore this perspective, yet it is perhaps one of the most important factors.  

For example, one of the growing cost saving tools companies use is call automation services.  “For sales, press 1.  For customer service, please hold while we test your patience.”  

Companies do this because they are measuring cost per call, or efficiency.  What the customer really wants is a convenient resolution to their call, or effectiveness.  Clearly these goals are working against each other and in most cases destroys customer loyalty and brand value.  

In the end, we need to balance costs with value, and we need to understand customer and corporate strategy.  Are we focused on customer intimacy as our core business focus, or operational excellence?  Are we measuring the business in a manner that reinforces our business model and customer value creation, or strictly by the bottom line?





Efficiency vs. Effectiveness KPIs

13 03 2009

Key Performance Indicators (KPIs) should be measures of risk to annual goals or strategic objectives.  If we can keep this list of KPIs minimal, we stand a much greater chance of keeping the organizational focus on improving key processes.

To derive these KPIs we need to understand the organizational inputs, outputs, and desired outcomes.  While this is a little academic, it is a good way to start to organize and define your KPIs. Outputs / Inputs are measures of efficiency, while Outcomes / Inputs are measures of effectiveness.  By overlapping the organizational or departmental focus we can align and define these KPIs to make sure they are driving the desired behaviors.  

Tradionally Sales and Marketing goals are to be effective, thus revenue per head, or win percentage are better measures.  While finance and IT are generally geared for efficiency withcost per order, or IT spend per target are more common.  

KPI design is far more difficult than people expect and is often unique to the environment as strategies, objectives, and priorities vary organization to organization.





Scalability as a KPI

7 03 2009

One item that companies should do a better job with is understand departmental scalability.  Are the company grows, do each of the departments grow with the same scale?  Does finance not scale because of compliance and risk, or because of broken processes?  How do we know if we can’t track Revenue / Departmental Headcount over time?

And if we do start to do a better job tracking metrics like this, doesn’t this give us greater insight as to where the organization gets the most bang for the buck?  As well as give us a defensible rational to defend against empire building for personal reasons?




External & Market Indicators

25 02 2009

One item most organizations struggle with is leveraging external indicators. Early last year, the price of gas created a chain reaction. Most companies cost of goods sold increased to where they were forced to raise their prices as their margins eroded.  

Even if we do that, we typically do not have a systematic way to incorporate the learning into a business process. What we would need is the ability to understand the external indicators, know of potential sources for the information, and work these into ongoing environmental scans.  

What is the value of understanding how the consumer price index impacts your revenues? What happens if you were able to move before your customer in terms of supply chain interruption? In some cases, this could mean millions to your top or bottom line. There are a number of organizations that knew the market was struggling in 2008, but did nothing to prepare.  And a number of those names will never be the same (GM, AIG, Circuit City, etc).

When is the last time you did a formal environmental scan, discussed the results, and put new actions into place?