We now live in a Business world where Complexity is the norm. Information systems and technologies are also more sophisticated and are providing an enormous amount of data.
Managing Complexity, and looking at the right data at the right time is critical in making the right decisions.
KPIs can typically be classified into 6 major dimensions, which are the reflecting the main stakeholders.
What I would like to highlight in this article is that setting the right KPIs is a dynamic exercise, aligned with the Strategy and fully supporting the decision-making process at top level.
Of course every department of the Company (Finance, Marketing, Manufacturing, Purchasing) has its own detailed scorecard. What I am here addressing here is HOW, at top management level, you manage this complexity and build a set of strategic KPIs that will help you to drive the business.
The KPIs reflects the way Company thinks and views its performance … and my experience is that is often too much driven by the Company history and culture.
It might sound “simplistic” but I have often observed that the Company culture and origin is often a major driver in the selection of the key KPIs
ü Financially driven companies will often react very quickly to their finance indicators (Profitability, ROI, Cash, etc …) … reflecting the fact that they will consider the Shareholder as their most important stakeholder.
ü Engineering Companies might focus more on Product, Manufacturing, and Quality, with a core belief that a superior product will win.
ü Marketing driven Companies will focus first on the consumer, the brand, the traffic, the customer experience.
The KPIs are however like the glasses through which you look at your business … and you may need to change glasses regularly.
Tip #1 : Align your Key KPIs on your strategy
The management must keep its eyes on the top priorities, and the key KPIs must fully reflect the Company strategy.
What is critical to achieve in the next 6 months or 1 year?
What are the indicators that will tell you that the Strategy execution is on track … or more importantly that some corrective actions are needed?
Don’t wait to have to dig in several layers of analysis to understand what is going on and how you are performing! It is a waste of time and loss in agility.
Too many Companies are still “stuck” on historical KPIs, keeping looking at the business the same way … not realizing that they are looking from the wrong angle.
Tip #2 : Don’t be too Self-centered and look 360
Never forget that competition is out there! Your performance needs also to be benchmarked in the market, otherwise you will get a purely self-centered view that will lead to some blindness.
Look 360 degrees to ensure you encompass your most important strategic challenges.
For example HR is often a critical dimension (retaining talents, measuring engagement), as well as CSR.
Tip #3 : Put the Customer at the Center
Among all the stakeholders of the Company, the customer might be the most difficult one to “measure” but requires full attention.
The “Customer journey” knowledge and tracking can be critical, and sometimes more than the purchase itself. Client purchase is a consequence of a decision process that happened before … and that the company needs to understand and measure as much as possible.
Digital channels can provide a lot of data (which are not always analyzed easily) … but the same techniques can apply to “brick and mortar” retail or OEM business.
The best-in-class marketing Companies are putting the Consumer at the center.
Tip #4 : Be forward looking
Scorecard should have a mix between “lagging” and “leading” indicators.
It is important to understand the past … but the past cannot always predict the future.
For example, market share is a lagging indicator (that tells you how you have performed), but demographic evolution could be a good leading indicator in some retail business (giving indication about your potential market evolution)
Leading indicators might not always be so accurate, harder to measure and benchmark … but will help bringing some insight about tends and very helpful in decision making.
Tip #5 : Keep it simple
Obviously, each KPI will have to be easily measurable and extracted from the Information System.
This is often more easily said than done, depending on how integrated and agile is the Information System (CRM, ERP, …).
Relying on some “manual” work can be fine … provided it is not too heavy (using too much manpower) and not too time consuming (speed in critical in decision making … and the data can become useless if it comes too late).
Some KPIs can be very sophisticated (for example a success ratio integrating many variables), but I would highly advise to avoid “black boxes”. Its meaning must be easy to understand … at many levels of the Company. The KPIs will need to be communicated and must “speak” a language that anybody can understand.
Keep it simple, and make sure your KPI tell a clear “story”, with a clear target and threshold.
As a Conclusion, I would like to remind that it is always a dynamic process, Markets are changing, Strategies are adjusted … and along this transformation process, the Company also needs to change the way it thinks and the ways it looks at its performance.
Your comments are welcome.
www.micolia.com
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