We’ve recently gotten a comment to “10 Step KPI System” book:
“I have found some good ideas, but in our organization I simply don’t have enough political weight to try all of them…”
In this article, instead of focusing on all possible improvement tactics let’s focus on ones that are relatively easy to implement, but drive visible improvements in a short period of time. In a case of success, the person who suggested those tactics will gain some political credits and prepare ground for future improvements. If your current challenge is more related to the KPIs themselves, then I do recommend for you to check out this article with recommendations for 6 essential metrics.
1. Find metrics for the bottleneck
Among all possibilities, focus on those parts of the business system that are limiting your performance. Thinking in this way will help reduce the number of less useful metrics and focus only on those few indicators that are actually “key” for your business.
Sometimes this approach looks like fire-fighting and some long-term perspective might be ignored, but at least your team will be clear about where the priorities should be right now.
2. Identify change metrics
Knowing what is limiting your business is a good starting point, but what is even more important is to understand how to extend these limits. Look for the ways to change, and respectively find the metrics that will help to confirm that you are on the right track with the changes.
For example, delivery service might find out that their bottleneck is the number of trucks on the route. A change goal in this case might be switching some deliveries to a delivery service with drones.
You might argue that delivery with the drones is a significant innovation, and it’s hard to find something similar in our niche. That’s true, but at least your team will now know where to focus their innovation efforts, and what changes can drive significant performance improvements.
3. Show the power of funnel metrics
Many organizations have a goal of improving profits by X% next year. One of the ways to make this goal more tangible and actionable is to build a funnel model.
For example, if we are talking about a sales funnel, then the right questions can be:
- How well is our business attracting potential customers?
- How well is our business generating leads?
- How well are the leads being converted into paying clients?
- Draw a money/value/customer flow and use it to understand what can be improved. Small improvement on each level of the funnel will lead to significant improvement in overall performance.
Let me use some simple math to illustrate the power of funnel metrics. For example, we have a 3-level sales funnel with a 5% conversion ratio between each level. On the first level, there are 10,000 prospect customers (for example website visitors), then there are 500 qualified leads (for example, those who downloaded the white paper), then there are 25 sales. The overall goal is to increase sales by 20% up to 30 sales. One way to do this is to increase the number on the first level by 20%, but we can also work with the conversion ratios.
What change in the conversion ratios would give us a desired 20% increase? 20%? 10%? No! Actually, in this case we just need to increase both conversion ratios by 0.5%!
The good thing is that we can build a funnel model for any aspect of the business from sales to innovations.
4. Practice “KPI freedom” with a team
A lot was said about the importance of the culture in the organization, including the performance measurement culture. In my book, I talked about the ways to change the culture, but in this article, I promised to share only ideas that will drive fast results. That’s why I suggest the following practical exercises.
Present the idea of “KPI freedom” to your team. Allow (and obligate) each member of your team to select 1 metric that he/she wants to use as a key one. This metric should be relevant both – in the context of the company’s overall performance and in the context of a person’s daily job.
Be prepared for some interesting and unexpected discussions provoked by the different ways people see their responsibilities and their impact on the overall performance. Take a chance to better explain where the company is aiming and how top managers plan to achieve the goal. A strategy map is a good catalyst for such discussions.
Such discussions will be more productive if there is someone to explain the difference between the process and the result metrics, as well as the difference between leading and lagging metrics.
5. Visualize performance figures
Do it without any additional comments or explanations, just visualize 1-2 important metrics on a big screen that your team will see each day. Make sure you show the current performance and the historical trend.
I would keep it in this format for a while. If you are lucky, your team will soon start asking about the numbers, what they mean for them, and if/how they can contribute. Then, further discussions can be supported by strategy maps and more detailed dashboards. Use professional strategy execution software, like our BSC Designer, to automate some routine aspects.
These were 5 actionable ideas for the KPIs. I hope you found at least 1 that you will try. Feel free to share your experience in the comments.