Tag: key performance indicators

There are many types of metrics companies use to measure success, but how do you know what the most effective Key Performance Indicator (KPI) is for your particular business? John Raftery, executive coach at LEAP, explains how keeping a Core Score  can dramatically improve your business performance and drive behavioural change.

The Core Score and Performance Management

One of the key issues that people have when they’re trying to run a business and trying to come up with Key Performance Indicators, is that most of the KPIs are financial. But in order to have a balanced score card you need to have KPIs across 4 elements of the business. One is obviously the financials, the second is people, the third is customers and the fourth is processes.

Sometimes though you can find a unifying score or KPI which is a core score for the business; the Core Score for the business is something you can map in graphic format, as in a bar graph. It captures the essence of the business and it becomes like a flywheel within the business that will drive all the other elements of the business.

The New York Metro Example

I’ll give you an example from Malcom Gladwell’s bestseller The Tipping Point, about how behavioural trends take hold in society. A candidate was assigned to take over the running of the New York City metro, a system which looked and behaved like a sewer in terms of its business performance and its visual impact on the customers. He was tasked with the job of turning the metro around. He disappeared into his office for a number of weeks and thought about the strategy for bringing the subway system back to success. He emerged after a long consultation and thinking process with an answer.

All the staff eagerly waited to hear what the answer was. They thought it was going to be a very complex strategy involving lots of financial data. But his answer was this: we are going to cut down on subway fare dodgers. We are going to adopt a zero tolerance policy towards people who get on the subway without paying. Everybody thought this was ridiculous; if you were going to solve the major problems of the NY metro that’s not where you should start.

But he persisted and added additional security to catch fare dodgers. The security company started catching so many dodgers that the NY police had to become involved and set up their own porto-cabins in the underground platforms to cope with the problem. They were arresting people in large numbers, sometimes with fare dodgers handcuffed and lined up like a daisy chain on the platform. The police also found that when arresting the fare dodgers some were carrying weapons or drugs or they were wanted for some other crime. The message went out very quickly across NY that if you want to travel on the subway, you don’t carry weapons or drugs, you pay your fare and generally behave yourself.

It then became evident that the safest way to travel in NY was by subway which resulted in an increase in footfall. With that increase came an increase in revenue which allowed authorities to clean up the trains, get rid of the graffiti and so on. The clean-up had a further effect of increasing footfall and revenues even more. Essentially what he had identified was a flywheel within the business that was easy to manage and would trigger other positive things throughout the business.

The Core Score Effect on an SME

The question is how would you apply that flywheel effect to the SMEs that we deal with? I’ll give you an example of a service repair business, where a service team was going out to repair domestic equipment in the home and it was €70 for a call out. A lot of the repair engineers were not completing the task the first time.

They had to go away again and return with a different part for the appliance or different tools that they didn’t have in their vans. So we looked at that and decided we had to start measuring first time completion rates on the job. It turned out that first time completion rates were just over 50. Almost half the engineers had to return to complete jobs on another day. That led to customer dissatisfaction as well as loss of revenue because you could only charge the customer for one call out. So there was huge inefficiency within the business.

We began to measure each engineer for their first time fix rate, and we figured out that if they could increase their first time fix rate by a certain percentage it would bring a serious amount of cash into the business, without having to make extra investment in resources. The second effect was that increasing first time fix rate also increased customer satisfaction rates. The third effect was it allowed the business to see which engineers were performing well and which ones were performing poorly. This helped to identify where the deficiencies were in terms of where training was required. Often just by measuring something there is a natural improvement in performance and we began to see improvement straight away. Cash began to flow into the business and there was no requirement for additional resources or investment. The business was transformed as a result.

So the key really is to try and find what the Core Score is, the flywheel in the business that will drive the rest of the activity within the business. Finding the right KPI that not only tells you how the business is performing, but will actually drive performance and drive behavioural change, and will drive other things within your business if its measured in the right way. So what I would recommend is that visual management tools such as a bar graph represents something that can drive behaviour and drive other activities within the business. If you can identify that it can have a very powerful effect on the business.

 

What is management?

Managers need to do many things, but clarifying business objectives, and deciding key performance indicators (KPI) to measure against those objectives, is crucial to effective performance management. It may, or may not, come as a surprise to you that many businesses in Ireland don’t document either of these. A company’s vision has to be supported by a clear set of objectives. Managers need to know how and why they reached some objectives, but failed to reach others. Maureen Grealish, director at LEAP, spent eight years in a business advisory role dealing with these very issues. Here she shares some of her insights into why business objectives and KPI’s are inextricably linked to your bottom line.

Maureen, in your experience how many businesses have their objectives clearly defined?
Most businesses don’t have any objectives, because they don’t realise the importance of it. There is a phrase ‘what gets measured gets managed.’ Sometimes people are taken up with the enormity of their tasks and they don’t realise that by focusing on 5 or 6 key things they can have a lot more impact on their business. Objectives are the 5 or 6 key things that they need to address in a given time period. That time period could be 6 months or a year, whatever the right time frame is for that particular business. But without that reference point you find that people are fire-fighting a lot, or business becomes very reactive. When they have an objective in place they have a target, and it helps them act in a more disciplined way. It also helps them measure how they’re doing as they go along so they know if they are on the right course or not.

So there are businesses operating without any set of objectives in place?
Yes because they don’t have a strategy. We ask people ‘what’s your vision for the business?’ If that’s your vision what’s your strategy for getting there? The objectives need to be linked to the strategy. So your strategy might be for a 5 year period. So let’s take the first year as a time frame. In order to achieve the vision, and thereby the strategy, what do you need to have achieved in that first time frame. And then the next time frame, and then the next. So the objectives should be seen as a set of milestones towards achieving the vision. But many businesses don’t have a vision, don’t have a strategy and don’t have objectives.

If they don’t have a set of objectives, what are they actually doing on a daily basis?
It depends. This is one of the big issues in business. They are essentially managing what’s in front of them. Some are managing their current customers, others are managing their current work rate, or they’re managing current staff but they don’t have an eye on the future. They might have an idea of where they want to get to but they’re not actively managing towards it. They’re almost hoping it will happen without actually steering themselves towards it.

How are objectives measured in terms of Key Performance Indicators?
If you have five or six key objectives you will have a measure for each one that makes sense to that particular objective. You generally have two financial based objectives, so you’ll have two financial KPIs. So for turnover you’re measurement will be a sales report. For a profit objective the measure would be your monthly managed accounts, the actual profit or loss figure.

For non-financial objectives you need to come up with a measure that makes more sense to that objective. Once you have developed the objectives the next thing you do is develop the measures for each one. For a customer service type of objective you may look at doing customer surveys, or mystery shoppers or you might do some kind of audit, where you score for a particular performance, and monitor that over a period of time to see that the action you are taking is making an improvement. It’s about picking a method that will measure the effect of an objective.

Give an example of a poorly thought out objective.
A poorly thought out objective would be ‘I’d like to increase sales.’ It doesn’t have any reference to how much you want to increase sales by, where you’re starting from or the time period where you want it to increase. So a better objective, when you’re looking at sales, would be to increase sales by 10{aa1e4c34c9c0f46e0a1f04e30c2eb1b9efaea7a47ed6ca6f324476e114da37f4} by Dec 2014. What you’re trying to do is establish a measure that will hit every element of the SMART acronym – specific, measurable, achievable, realistic and time bound. Until the objective can tick each one of those then you don’t have a good objective.

How can LEAP help managers and businesses with this critical issue?
We do it as part of an overall process. We need to see the wider context of what they’re trying to achieve in business. So we work with senior management initially to work out what the vision is for that business. Then they need to break that down into manageable chunks. So they may have a three year vision, but they need to focus on the first year. So in the first year what are the five or six key things they need to focus on in order to help them get closer to their vision?

What LEAP can do is help them with their vision. Agree on what the specific objectives are, and identify the measurements they will use. Help them agree on the timeline and implement the strategic plan. Help them monitor their performance, adjust their behaviour and achieve their vision.

Maureen Grealish is a partner and director at LEAP.