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
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
To find new, big-impact,
Root-Cause KPIs consider the following…
- “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”.
the few root-causes that will
impact downstream EFFECTS the most: “the vital few”!
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.
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”.
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!
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.
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.
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.
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.
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
“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.
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?
of all customers profitable?
100% of the 150% internal peak profit number and much more? (!)
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:
improvement in net-profits for top 10% items.
Decrease Y-O-Y net-losses for the bottom 3%.
Grow your GM$/pick. Then, service value must be improving, and
all downstream, people productivity metrics will soar!
Financial numbers are
symptoms of upstream causes, innovate with the Root-Causes. Financial totals
average out and hide the big:
cross subsidies that exist between customers and items; and
The big, annual,
net-profit swings that happen within, specific accounts.
cross-subsidies and profit-swings.
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;
attending the Advanced Profit Innovation
Conference (March 4-5, 2014; in Phoenix):
Or, emailing me with questions at