Are your KPIs pie in the sky?

I’ve been working on some Key Performance Indicators (KPIs) for a project recently, and during my research I have been struck by how often they are defined without any thought for the ultimate purpose – almost measurement for the sake of measurement.  Equally people are measuring things that don’t really tell them anything, and failing to measure things that would be far more informative.

Everyone knows the “turnover is vanity, profit is sanity” saying.  Yet many people that you ask will be able to tell you what their monthly turnover is, and perhaps how many orders they process each month.  A smaller number will be able to tell you the margin they made on those orders, and fewer still will have the performance metrics of how many orders were sent out short of items, or late, or how many hit delivery problems.

These last few items are the key performance indicators (emphasis on the “key”) as they help you to measure and improve your business performance.  There’s no point in supplying a £10,000 order if you need to discount it heavily, and provide special packing or labelling or whatever for the customer – you will have no margin left, and no profit, so the £10,000 is all but worthless as nothing reaches the bottom line.

Equally, if you are always short of stock you will be either losing sales or incurring the cost of processing back-orders – again impacting the bottom line.  So make sure you are measuring the right things.

[box]“Count what is countable, measure what is measurable, and what is not measurable, make measurable” (Galileo Galilei)[/box]

Galileo may have a fair point with this comment – certainly it supports the view that you need to think about how you structure your processes, so that you can ensure that you collect the information you need to measure performance.  There’s no point trying to measure how many items your warehouse can pick in an hour if all you are recording is the value of the orders.

So if you can’t measure it and you need to measure it, do what you have to do in order to make it measurable.  But is that always possible?  Despite what Galileo said, another fairly bright bloke was of the view that not everything could be made measurable:

[box]”Everything that can be counted does not necessarily count; everything that counts cannot necessarily be counted.” (Albert Einstein)[/box]

Well, you can’t dispute the first part of this quote – measurement for the sake of measurement.  Make sure that you are concentrating your efforts on what really matters.

But what about the second part – are there really things that we can’t measure?  I suspect Einstein is talking scientifically when he makes this comment, which is hardly surprising, but in business terms we can measure pretty much whatever we want to, provided we put the logic in place.  The difficulty, it seems to me, is not the measuring but the determination of what matters the most.

To my mind, there are two priorities – the first is customer service, always.  Without those guys you have no business, so to me there is no argument about that.  Measure everything you can that gives you an indicator of customer satisfaction – get feedback; get reviews; try product out on tame customers before you launch it; ask them all the time whether you are doing well – get them to score you 1 to 10, and if you get a 7 ask what you would need to do differently to get a 10.

Incidentally, ask your staff an internal version of that last question as well – “How did we do this month?  How do you think we scored on customer service?” – then ask what you all could have done differently to get a 10.  That way you may unearth some internal issues that you haven’t previously spotted.

Which brings me to the second most important element, which are the measures of your own internal efficiency.  Look at everything you can think of that impacts on your customer service.  Your first set of measures have told you how you are doing with customers, this set will tell you why you are getting that outcome, and you can then improve, or do more of the same, or whatever the metrics are telling you.

Third on the list, for me (and this is where I differ from a lot of KPI people) are the measures of individual performance.  Of course this is important, but it isn’t as important as the other two items on the list – first is the customer, second is the business as a whole, and third are the people who make up that business.

KPIs are not there to create sticks to beat people with.  They can be used that way, of course, and clearly you need to be able to verify that people are pulling their weight, but that’s not how you want metrics to be seen, otherwise people will start to try and manipulate them, and that helps nobody.

Make sure that you put a positive spin on all KPIs – measure successes as often as you measure failures.  Just make sure they are relevant.  My view is that if you get the balance right, you will gain superb visibility of what really matters in your business, and the information that you need to improve, evolve and grow will just fall into your lap!

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