I was reached by a potential client from a Spain-based manufacturing company. He told me that he needs to come up with some better KPIs… But it appeared that the actual problem was their strategy. Let me share the key findings of that conversation. I’m sure you will be familiar with many challenges that we discussed with Pablo.
– [Pablo] Alex, we need some help to come up with better KPIs.
– [Alex] Sure, let me know the details!
– [Pablo] Well, we need some KPIs that will track our progress in improving business performance…
– [Alex] What would be your strategy to improve the performance?
– [Pablo] Well, our strategy is the elimination of any poor business performance… Do you have a KPI for this?
– [Alex] Knowing more details about the reasons for the underperformance, I could recommend you some good metrics to track, but they won’t help you much. In my opinion, the first thing to do is to come up with a good strategy.
– [Pablo] Isn’t “elimination of the poor performance” a good strategy?
Designing a Good Strategy
– [Alex] Well, it is not a strategy. “Poor performance” is a very vague definition of the problem that your business has experienced. “Elimination of the poor performance” can be a goal, but a strategy is something more complex.
To define a good strategy, I would suggest the following steps:
- Invest time in researching the reasons for the poor performance
- Come up with some good actionable goals that will address the underperformance problem
- Strengthen these objectives with detailed action plans
- Find some indicators that will help to keep track of your progress towards achieving these objectives
Strategy is not a Action Plan
– [Pablo] The suggested steps make sense. So, I create the strategy and control the team according to the KPIs. Right?
– [Alex] KPIs are there to make sure that your team is on the right track, but be careful when treating strategy as an action plan.
Strategy is more about making an informed assumption or a business hypothesis about what might be the reasons for the poor performance and what might be good solutions to these problems.
As any hypothesis it might work or might not. Taking in account the experience of your team, you have a good chance of coming up with a strategy that will work.
How-to guide for getting business insights
– [Pablo] Well, now it makes much more sense for me… Do you suggest using a certain business framework to analyze the current situation and come up with a strategy? Something like SWOT?
– [Alex] There are a number of strategic planning frameworks. Business tools like SWOT, 7-S, Balanced Scorecard, Gap Analysis, Competitive Analysis, etc. will certainly guide your team. While frameworks help, all the insights and their quality will depend more on the experience of your team.
Why it did not Work in the Past
– [Pablo] We actually did something similar in the past and it did not work out well.
– [Alex] What exactly happened?
– [Pablo] Well, we did a kind of brainstorming and we had a list of excellent ideas. In a few months I understood that we had progressed in just a few of them that were really close to what we have been doing before. I guess we just lost the focus. I thought that some new KPIs could help us, but after trying some I’ve found that they worked as another formal routine that our employees hated. KPIs were reported, but no one had an idea about what to do with this information.
– [Alex] I think the first step when you brainstormed ideas was the right one. The problem appeared because those ideas were neither aligned with each other nor with a problem. Actually, the problem itself was not properly diagnosed and described.
– [Pablo] Yes, it was something like this… The Sales department suggested developing a discount program; marketing told us that we needed to add two more products to satisfy our clients’ needs; engineering argued that we needed to try a new technology…
Map the Goals and the Reasons Behind Them
– [Alex] I suggest you start with the proper diagnosis of the problem. It won’t be as simple as “this prevents us from performing well.” Most likely you will find a number of interconnected factors. Moreover, some connections and correlations won’t be really clear to your team.
– [Pablo] Sounds familiar… what can we do to stay focused?
– [Alex] Creating a map where the goals are linked to each other to represent a cause-and-effect connection between them. The factors behind these goals should be reflected in the supporting documentation.
- If you use BSC Designer, then you can do this on strategy map tab and map the factors in the description of the goal or via the initiatives.
You need to focus the company’s efforts on a few objectives that will be more likely to lead you to success.
– [Pablo] It appears that the ideas of marketing to add two more products had nothing to do with our poor performance. Our clients would only be confused with new products. Can an opposite idea (removing some products) work for us?
– [Alex] It is hard to say without seeing your business process and performance results. Normally reinventing a product line helps to focus a company’s efforts on what matters. Take Apple’s strategy as an example, when Steve Jobs focused on cutting their product line.
The Role of Key Performance Indicators (KPIs)
– [Pablo] It appears that the major part of the job is about making a careful diagnosis of why things happened as they did… What about KPIs? Which ones do I need?
– [Alex] Finding the roots of the problem is must-have action in strategy planning. When you put all parts of the diagnosis together you can come up with a strategy to address these problems. KPIs will help you to see if you are on the right track.
– [Pablo] Yesterday this answer would sound logical to me. But after our conversation I’d like to ask you to be more precise. What exactly do you mean by “seeing if we are on the right track?” Can you give me some examples?
– [Alex] For example, what problem do you want to solve by eliminating some of the products from your product line?
- Would you like to cut some engineering and marketing expenses, or
- Do you plan to make your customers pay more for advanced versions of your product?
Indicators will help you to track the progress towards these goals. You can use indicators that will measure certain types of engineering expenses and/or come up with an indicator that will confirm that customers are buying an advanced version after the old one was removed from your product line.
– [Pablo] Now I see that my initial questions about KPIs was pointless! Thank you for focusing my efforts in the right direction. By the way, why do you say “indicator,” and not a “KPI?”
– [Alex] I’m trying to be careful about using terms like metrics, indicator and KPI. People tend to call a KPI any metric, but not all metrics are KPIs. I’ll send you a link to the article where the details were discussed. Metrics might become a KPI only when placed in a certain business context. By the way, that’s why a long list of KPIs from the Internet don’t work.
From a diagnosis to an action plan with KPIs
– [Pablo] Let me summarize what I have learned:
- We need to start with an analysis of the reasons for the poor performance problem that we have. I’ll use ideas that you shared and various business frameworks to stimulate the creative thinking of my team.
- The results of this analysis need to be mapped to show a connection between various factors. The strategy map automation functions of BSC Designer that you’ve shown look very promising for me.
- I will formulate these factors as actionable objectives where it is possible and together with my team we will come up with an action plan.
- Finally, I will need to find some key points that will tell us if our hypothesis actually works. I’ll track metrics, which are the numerical values for these key points.
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– [Alex] That’s an excellent summary! With BSC Designer you can automate not only a strategy map, but also the KPIs. Your action plans can be aligned with KPIs and business objectives in the form of initiatives.
– [Pablo] Thank you for your help!
– [Alex] You are welcome! Nice to see you among the users of BSC Designer!
Have you faced the same problems in your business? What are your favorite methods to get business insights?