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.