I was reached by a potential client from a Spain-based manufacturing company. He asked me for advice about a better kind of KPI. After a short review of the situation we agreed to have a short Skype session. At the scheduled time, Pablo called me. We exchanged impressions about living and doing business in Catalonia as compared to the rest of Spain and shortly we moved up to business topics.
I asked the client a few questions about his needs. It became obvious for me that the actual problem was not with a KPI, but with a strategy. It took time to explain this to Pablo, but finally he was happy with the number of business insights that he had gotten. After we finished, I decided that this information was worth sharing with others. Intentionally, I used a dialog style to tell a story about what was discussed. In this way readers could track argumentation and advice about different aspects of a strategy.
A need for KPI reveals a problem with a strategy
– [Pablo] Alex, we need some help to come up with better KPIs.
– [Me] Sure, let me know the details!
– [Pablo] Well, we need some KPIs that will track our progress in improving business performance…
– [Me] What strategy are you going to execute to improve the performance of your business?
– [Pablo] Well, our strategy is the elimination of any poor business performance… Do you have a KPI for this?
– [Me] If I had more details about the underperformance that you have experienced, I could have found an indicator that would show you the level of the underperformance that you have, but it won’t help you to perform any better. In my opinion, what you actually need to do first is to come up with a good strategy.
– [Pablo] Isn’t “elimination of the poor performance” a good strategy?
An approach to finding a better strategy
– [Me] 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 more about objectives than about goals [readers can check out an article on the topic]. If you want my advice I would suggest the following:
1. Invest time in researching the reasons for the poor performance;
2. Come up with some good actionable objectives that will address the underperformance problem;
3. Strengthen these objectives with detailed action plans;
4. Add some indicators that will help to keep track of your progress towards achieving these objectives.
– [Pablo] This makes sense. I need to think about your ideas…
Strategy is not a guarantee of success
– [Pablo] Do you guarantee that this will work?
– [Me] Here we are talking about making an informed assumption about what might be the reasons for the poor performance and what might be good solutions to this problem. This is a kind of business hypothesis. As any hypothesis it might work or might not. I believe that taking in account the experience of your team we have a good chance of coming up with a strategy that will work. (Readers can check out another story where we discussed an example of making educated experiments.)
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 solutions? Something like SWOT?
– [Me] Business tools like SWOT, 7-S, Balanced Scorecard, Competitive Analysis, etc. will certainly guide you and your team. Although the best business insights will be rather spontaneous breakthroughs based on the experience of your team.
Here are some topics to stimulate creative thinking of your team:
- Put yourself in the customer’s shoes. What can be done better?
- Have a look at your competitors, their products and services. What can you learn from them?
- What limiting factors (constraints and bottlenecks) do you have in your business environment?
- Instead of adding something to your business consider removing something that might be holding you back.
- Model your processes on the paper or in software, visualization helps
Why it did not work in the past
– [Pablo] We did something similar in the past and it did not work out well.
– [Me] What exactly happened?
– [Pablo] Well, we did a kind of brainstorming and we had a list of excellent ideas. In few months I understood that we had progressed in just few of them that were really close to what we have been doing before. I guess we just lost 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.
– [Me] 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.
– [Pablo] It went sort of 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. We did just a superficial analysis of the problem and started shooting out solutions.
Map the factors of failure
– [Me] I suggest you to 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?
– [Me] Creating a map where factors are linked to each other to represent a cause-and-effect connection between them (BSC Designer software can help with automation of this). These factors can be easily transformed into objectives. And your goal is 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?
– [Me] 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. Look at the list of topics discussed before that can stimulate creative thinking of your team. If you feel like too many products is one of the limiting factors, then it might be a good idea to update your 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?
– [Me] That’s correct. 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?
– [Me] 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 are supposed help you to track your progress towards these goals. You can use indicators that will measure certain types of engineering expenses and/or you can 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 how pointless my initial request was for a KPI! Thank you for focusing my efforts in the right direction. By the way, why do you say “indicator,” and not a “KPI?”
– [Me] 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 of the poor performance problem that we have. I’ll use ideas that you shared and various business methods 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 showed 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 about what needs to be done to solve the initial problem actually works. I’ll track metrics, which are the numerical values for these key points.
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– [Me] That’s an excellent summary! With BSC Designer you can actually automate not only a strategy map, but also the KPIs. Your action plans can be aligned with KPIs and business objectives. Most people download and try the software just to manage KPIs, but now you see that one will spend more time on the “Strategy map” tab on KPIs.
– [Pablo] My first thoughts about the software was exactly as you described. I’m happy that my understanding of how business challenges need to be addressed was changed. Thank you for your help and for your excellent software!
– [Alex] You are welcome! Nice to see you among the users of BSC Designer!
What do you think about advice that I gave to Pablo? Have you faced the same problems in your business? What are your favorite methods to get business insights?