Strategic Insights 30

In Search of Key Performance Indicators (KPIs) That Will Spark Results

Dashboard technology is cool, but what KPI’s are you tracking on your mobile tool while at the pool? Since KPIs don’t innovate on their own, how will your team be turned on by better KPIs? 

Financial KPIs are accessible and important, but they are final, downstream, symptoms or EFFECTS of what upstream, ROOT-CAUSES? For 30+ years, you and your competitors have run your businesses by financial (and Industry Performance) KPIs. What upside gains and competitive advantages are left to be captured from managing these symptoms?

To find new, big-impact, Root-Cause KPIs consider the following…  

GUIDELINES: 

1.     Keep asking - “why” a weak financial metric is occurring. “Whys” will take you “upstream” to Root-Causes. Summarize the upstream causes for a downstream, financial number with a “Fishbone Diagram”.

2.     Focus on the few root-causes that will impact downstream EFFECTS the most: “the vital few”!

3.     Service-value processes go through departments. Put all of the employees within a service-process on one team. Make them all responsible for improving vital, service-process KPIs. Since revising service systems and human habits isn’t easy, fewer KPIs is better.  

4.     Seek Win-Win KPIs. In the ‘80’s we learned that “quality is free”. A “zero-error” KPI like “picking errors per thousand line items processed” – is a catalyst for finding NEW ways to both lower operational costs and increase service value: a big, double-edged win! Financial KPIs suggest, by contrast, zero-sum, win-lose practices with unsustainable results like: “Buy Low, Sell High. Hire Cheap, Work Hard. Collect Early, Pay Late”.

5.     Be innovative about measuring the unseen. How, for example, do you measure “errors per thousand line items” to move that KPI towards ZERO? Invent a good-enough way!     

6.     “Good-enough” works! If a novel KPI improves – focus, thinking and experimentation – by a level over what your competitors aren’t doing, then you win! Standards for perfect (audited) financial reporting need not apply to strategic, action-tool KPIs.

7.     Measuring previously unseen opportunities scares people two ways. Managers feel inadequate. And, seizing new opportunities will require new skills; who wants to look like a floundering beginner? Forgive past oversights and encourage new learning by failing forward with non-stressful, Baby-Steps. Don’t jump into the opportunity with both feet, test cheaply.  

8.     After reducing fears, work on motivation. Publish praising statements about every action step and “good mistake” that anyone makes to improve the KPIs. Everyone will eventually join in or leave due to public exposure for not being on board.

9.     Ensure that every employee has a line-of sight from their KPI improvements to Net Profit improvements and their gain-sharing bonus. Answer the question - “What’s in it for Me (and We)” continually.

10.   Guidelines 1-9 must be governed by strategies that are relevant to your present life-cycle needs. Startup distributors with new lines and true, new products should have different KPIs than distributors selling commodity rebuys to consolidating customers looking for service-value-chain solutions.

11.   KPIs aren’t “key” forever. Once KPI progress is maximized, lock in performance with new: understanding, systems and habits. Then, find the next, best KPI to work on.

12.   Line-Item Profit Analytics (LIPA) uncovers huge, new KPI opportunities. Determine the profit or loss for every, line-item in your business and spin this information into profit-improvement gold. If, for example, 40% of all customers generate 150% of your operating profits and 60% lose you the extra 50%, how can you innovate to improve these mid-stream KPIs? 

a.     Make 100% of all customers profitable?

b.     Achieve 100% of the 150% internal peak profit number and much more? (!)  

13.   If 10% of your active SKUs generate 500% of the operating profit while the most unprofitable 3% of the active items eat 350% of the 500%, then do “5-why” analysis to find action plays to improve these mid-stream KPIs:

a.     Increase year-over-year improvement in net-profits for top 10% items.

b.     Decrease  Y-O-Y net-losses for the bottom 3%.

c.     Grow your GM$/pick. Then, service value must be improving, and all downstream, people productivity metrics will soar!

SUMMARY

Financial numbers are symptoms of upstream causes, innovate with the Root-Causes. Financial totals average out and hide the big:

·        Profit-loss cross subsidies that exist between customers and items; and

·        The big, annual, net-profit swings that happen within, specific accounts.

LIPA Management:

·        Measures the cross-subsidies and profit-swings.

·        Reveals new, vital, Root-Cause KPIs, insights and profit improvement plays.

·        Will demand and enable bottom-up innovation from re-engaged employees.

Then, all stakeholder groups will: win big; love you; and let you spend more time at the pool watching both new KPIs and old financial symptoms improve.  

Learn more about Line-Item, Profit Analytics (LIPA) Management by:

·        Checking out my E-book and youtube video clips at www.merrifield.com;

·        By attending the Advanced Profit Innovation Conference (March 4-5, 2014; in Phoenix):  http://apicconference.com/APIC.asp.

·        Or, emailing me with questions at bruce@merrifield.com.