In this KPI master class I will the answer the Five W’s – Who, What, Where, When, and Why.
This Masterclass will cover the following topics:
- The definition of KPI – Key, Performance, Indicator
- What Customer Value Chain KPI or Customer Service Metrics are
- The importance of KPI in determining Customer Service / Customer Value
- How measurements can provide a higher level of Business Success
- How you can implement Ultimate Customer Value metrics in your business right now
Other topics you may be interested in:
– How to develop your successful Business Strategy
– Innovation at its best – what BMW engineers have to say
Having the ability to track and take action on our Ultimate Customer Value is critical to success. If you do not have this in place you are flying blind!
Who – should have KPI.
Typically we think of KPI in a business sense but that is not the only place they are used. We use them in sports e.g. batting/bowling averages for example. They are used in Trading and gambling e.g. odds, payout, and win ratios.
We even have KPI in our technology – battery performance, energy consumption (cars/appliances), internet performance are all areas in our everyday life where we use KPI without even thinking about them.
Who should have KPI? Every business should have Ultimate Customer Value (UCV) KPI in my view. Having the ability to track and take action on our Customer Value is critical to success.
Customer Value is made up of the 4 proven analytic (non emotion response) elements built into the human buying decision.
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- Cost
- Quality
- Speed
- Customer Service
When making a buying decision human being quickly analyse these 4 factors to determine the value. There are emotional factor to be considered also but these are almost impossible for us to accurately measure whereas Ultimate Customer Value or Customer Service Value we can measure within our business on a daily basis!
If you do not have this in place you are flying blind!
I’m small, I have an intimate relationship with my customers, I don’t need UCV KPI….. I hear this a lot. The reality is that you may forget that you were overdue with a client or that you had to change out the product due to quality issues 3 months ago. You have forgotten because you are busy but the client has not forgotten.
All too often we are left scratching our head when a customer leaves or complains – we didn’t see it coming….. That’s because we are not tracking their value experience. Once you track it you can keep refining it until it’s perfect, otherwise it is hit and miss.
In additional to every business, any person wanting to to understand the performance of something should use KPI.
Who = everybody (we already do)
All too often we are left scratching our head when a customer leaves or complains – we didn’t see it coming….. That’s because we are not tracking their value experience. Once you track it you can keep refining it until it’s perfect, otherwise it is hit and miss.
What – is a KPI?
KPI is short for Key Performance Indicator.
Let’s break this down before we look at it in total.
K is for Key – what is a key?
A key for a lock, a keyboard, a musical instrument, or key for example in keynote speaker. Each of these keys drive towards a predetermined action. A key locks or unlocks a door, a keyboard key creates it a digital signature that can be translated into letters or pictures or movements, when striking a key in music there’s a predetermined known sound that is expected from that key, even the keynote speaker is typically design to drive interest and get bums on seats at the event.
This is critical because where there is no predetermined action or we don’t know what action we want from a KPI, it’s not really a KPI.
If we don’t know what action we want from a KPI, it’s not really a KPI.
P – is for performance . The typical definition for performance is execution of an action to accomplish something.
Whilst a key is designed to provide predetermined outcome, performance is execution of the action to accomplish that outcome. This is pretty cool because it means a single KPI must be measuring both the execution and the accomplishment.
I often see KPI setup that only measure one or the other for example measuring sales as a value this is the outcome but does not measure the execution, we may measure the number of hours it takes to do something, this is execution but does not measure the accomplishment.
A good way to look at performance is by using the formula output divided by input equals performance (p=o/i). Output is the accomplishment and input is the execution value.
Using sales again, a simple example of this might be sales per hour.
The great thing about using a true performance formula is you’re measuring both efficiency and effectiveness at the same time. Let’s go for a simple example.
Bob and Joan are both salespeople at ABC company. Bob is old school, and although almost retired he has not let up at all. He pulls the highest amount of sles every month. He has a lot of connections within the industry and makes a sales primarily through face to face meetings, coffees, lunches, and the like.
Joan on the other hand is new age she loves digital. Joan has a young family and requires flexibility, because of this she works less hours than Bob.
Over last month Bob made $80,000 in sales he works 50 hours week on average.
Joan on the other hand does $60,000 in sales over the same period and she works an average of 30 hours per week.
We decide to set the KPI of sales dollars per hour worked.
You take Bob’s $80,000 divided by 200 hours for the month gives us $400 of sales per working hour.
Let’s look at Joan we take her $60,000 divided by 120 hours and that gives us $500 per hour.
See that’s interesting Joan is actually 25% more efficient and effective than Bob.
The great thing about using a true performance formula is you’re measuring both efficiency and effectiveness at the same time.
This is an example of just one month across a sales cycle which is typically lumpy, on it’s own with just 1 month of data this doesn’t mean much, however if this was regular it would warrant investigation.
We will want to understand whether there are any opportunities to learn from Joan’s approach to apply to Bob and others.
Importantly if looking at only the sales value Bob would be the superstar, perhaps we would be encouraging Joan to take more coffee and lunch meetings because that gets us $80,000…
Whereas enabling Joan to work an additional 20 hours would likely give us more sales than Bob is providing.
I’m not suggesting we fire or replace Bob he may be a valuable member of the team he may have a wealth of information and connections that we still require. We may like Bob in our business!
However now that we have a true performance metric of sales $ p/hr we get the right information to assess the situation and make decisions based on both effectiveness and efficiency.
The third letter in KPI is for indicator.
I see some businesses that create a tremendous number of ”KPI” in the hope that the result will tell me exactly what’s wrong and give me a solution. Sorry that is not going to happen!
Indicator means to point to something, to direct towards, it doesn’t give an exact result and certainly does not solve the issue.
To identify the root cause of an issue and solve it you need to do some investigation. Discuss with staff, stakeholders, and maybe even customers. You need to come up with an action plan and apply a solution to see whether it resolves the issue. There is no way around this.
More KPI will not give you a solution it simply dilutes the “Key” in KPI making it confusing for staff to understand what is important.
Instead invest that time in applying problem solving skills, invest time in discussions with staff and customers. This will not only help resolve existing issues you will also have more engaged staff and customers and it will generate Innovation within your business.
It’s not about the KPI score it’s about the discussion and resolution it’s about moving the KPI in the direction that you want the business to go in.
I see some businesses that create a tremendous number of ”KPI” in the hope that the result will tell me exactly what’s wrong and give me a solution. Sorry that is not going to happen!
What – Easily understood performance metrics that drive people to take action.
Where – should I have KPI in my business?
The short answer is, it depends…
It depends on the core functions of your business the ramifications of cost, speed, quality, and service of each process. The size of the business has an impact, how easy it is to communicate and keep your business on track? The business culture and type of people working within your business will also have impact, unfortunately there is no magic number, no Magic Bullet.
But there are some basic rules you can follow. Where you should have KPI in your business is based on your business strategic direction and its success driver’s.
First focus on those processes and steps that add the most value to your business along with those processes and steps that can cause the most pain in your business if you don’t do them right.
For example in manufacturing where you are heavily systemised and machine-based you absolutely want your KPI at each process get that provides an input for another step or final assembly. This will help improve your quality assurance which is far less costly than adding quality control (I will wrote an article on quality assurance vs quality control – check out my blog in a couple of weeks here).
In larger firms you would typically have your KPI said in each function or area. There is a cost vs benefit decision to be made here. Processes that drive your sales revenue and your main components of cost should have KPI to drive to correct outcomes.
Basically if it’s important to manage that process to be successful in your business I would recommend you set up Ultimate Customer Value KPI in that process.
However don’t forget less is more!
Have less KPI but make them consistent across functions and teams. This will provide a management operating system that allows you to compare teams, divisions, and processes across functions. You will understand which are improving and transforming and which are not.
Setting the right KPI in the right processes is absolutely critical to achieve Financial Peak Performance and business success.
Focus on those processes and steps that add the most value to your business along with those processes and steps that can cause the most pain in your business if you don’t do them right.
Where – where they will have the most impact on both the sales and cost driving processes.
When – to set up and review KPI?
In defining the “When” we have two questions to ask – first of all when should a business implement KPI, and second when/how often should the KPI be reviewed.
The first one is easy – Yesterday, or at least right now!
Whether your business is brand new or mature, in growth mode or in mature stagnation, it doesn’t matter – now is the time to implement KPI. KPI are critical to success whatever stage your business is in.
However for your KPI to be effective they must be aligned to your business strategic direction.
Yes that means you need a strategy before you set KPI. If you don’t have one sit down right now and work it out. It should be super simple and fit on 1 page. Most clients I see have a strategy even if they don’t have it written down. Write it down and tell people about it.
If you need to build out your strategy answer these questions. – Where will you play? How will you win? What needs to be true to succeed?
The second “When” – when should we review and revisit our KPI?
Review is daily this will give very quick response and visibility into your business. If your business is running everyday, your KPI should be running everyday.
It’s not enough to simply review your KPI everyday you must review identify variances, investigate root causes, and take action on a daily basis. That’s not to say you will solve every variance everyday of course some things take time to investigate and get to the best solution. You must be taking down issues and forming actions every single day.
This brings KPI management into the everyday business activities it is no longer a monthly round table of hot air from managers, it becomes the guideline for staff to make every business decision throughout the day.
This is why it is 100% critical that those KPI be aligned to your business strategy.
Review KPI daily this will give very quick response and visibility into your business. If your business is running everyday, your KPI should be running everyday.
When – Now, Every Single Day!
Why – do we have KPI?
To measure stuff of course – we all know that. But why do we want to measure stuff?
The “Why” is not to just to measure something. The “Why” is to determine whether outcomes seen in the execution of our daily business activities is the outcome that we are aiming for based on our business strategy.
Let’s take it one step further, we have a KPI in order to identify variances and take corrective action to ensure we achieve predetermined outcomes within the business goals (strategy).
There have been a ton of studies into happiness within the workplace and one of the key things is that employees want to know their work is valued and are even happier when they’re rewarded for achieving highly valued work.
Another really key “Why” of the KPI is to show the value of the work done, once staff see how their work fits into the Ultimate Customer Value KPI they can immediately understand the value of their contribution to the business.
There you have it the 5 W’s of KPI development.
Get to it – develop your Ultimate Customer Value KPI today.
If this blog resonated with you, I would love to have a chat. Book a FREE consultation to see how I can help your business achieve Financial Peak Performance.
