Went to an interesting Enterprise Training workshop last night about Key Performance Indicators (KPIs). To my surprise it was very much like the Lean Manufacturing workshops I attended because it focussed on measuring performance in all aspects of your business to succeed. For example:
Why do we need KPIs?
"You can't manage what you don't measure"
Without metrics [measurement]...
- Decisions are based solely on feeling, instinct
- Performance is subjective
- There are no standards for improvement
Every business needs to measure it's objectives or vision and the best way to do that is to clarify your business goals into the following categories:
For example if my objective is to "increase average revenue per customer from $100 to $150 by the end of 2009" then it can be classified like this:
- Direction: increase
- KPI: average revenue per customer
- Benchmark: $100
- Target: $150
- Timeline: Now until the end of 2009
Over the next week I plan to go through our business goals and ensure that I can describe them within the above five categories which I think will clarify our business measurement somewhat.
An important thing to note, is not to confuse KPIs with Critical Success Factors (CSFs). A critical success factor is something that needs to be put in place to achieve your objectives. For example, if my objective is to "increase average revenue per customer from $100 to $150 by the end of 2009" then one of my CSFs might be to introduce a new product range, improve staff productivity or reduce costs but those are not the KPI which is "average spend per customer". I think this is an important distinction because as business owners we can get tied up in our products or not change our ways because that's how we always did it. Separating KPIs from the Critical Success Factors actually opens up space for new products and processes to be introduced to achieve the KPIs.
OK. So how do we implement a successful KPI program?
STEP 1. ESTABLISH STRATEGY, GOALS AND BUSINESS DRIVERS
Strategy examples: Be number 1 franchise, first to release new products, buy or develop new techniques
- Goals examples: increase average revenue per customer from $10 to $150 by the end of 2009, improve staff productivity by 100% in 2 months, decrease support by 10% by 2009.
- Business driver examples: You goals are your business drivers. Split them into four categories like this:
- Customer Satisfaction Goals (what are the supporting KPIs?)
- Employee Satisfaction Goals (what are the supporting KPIs?)
- Cost/Productivity Goals (what are the supporting KPIs?)
- Organisation/Maturity Goals (what are the supporting KPIs?)
STEP 2. DEFINE AND BUILD DETAIL BEHIND KPIS
Now that we can identify our goals we can create KPIs for them. Below are some examples:
- Customer Satisfaction Goals: Accuracy, timeliness, courtesy, skills, overall satisfaction, transaction speed, ease of use/access
- Employee Satisfaction Goals: Turnover, sick days, training days per year, time to proficiency
- Cost/Productivity Goals: Cost per incident / product item, utilisation of plant and equipment, customer per employee ratios, jobs handled per employee.
- Organisation/Maturity Goals: Time to produce / service proficiency, work force density, Problem / error elimination values, process formalisation
STEP 3. REPORT - SHOW KPIs TO THOSE WHO CAN BENEFIT FROM THE INFORMATION
Map out specific actions that can be taken to achieve or exceed targets.
- Define alternate actions if KPIs aren't being reached.
- Implement KPIs into daily operations
- Reporting requires to identify what information needs to be measured, how often, how to be gathered and how to be presented. For example real-time reporting is useful for staff and supervisors whilst historical reporting is helpful to managers and business owners.
STEP 4. ACHIEVE AND MAINTAIN
Achieving and maintaining optimal performance is an ongoing process. For example:
- Strategies and goals change so regularly revisit your KPIs to verify their validity
- Adjust KPIs as necessary to keep efforts aligned with desired performance results.
So, as shown above, a lot of clarity can be gained using KPIs. I always thought of KPIs as staff KPIs meeting their job requirement but last night's workshop showed KPIs within the entire business model which makes a lot more sense and helps me understand Lean Manufacturing a bit better.
Some of the my notes from the workshop include:
- Avoid measuring and monitoring too much stuff. Only monitor what needs to be monitored.
- Be SMART (Specific, Measurable, Achievable, Result Oriented, Time Bound).
- KPIs are metrics but not all metrics are KPIs.
- KPIs are critical, actionable measures.
- KPIs are tightly linked to strategies and goals.