On their first attempt, few companies see dramatic transformations with Key Performance Indicators. Many businesses or organizations eventually abandon the efforts because they start out with poor alignment between what they are measuring and the business value proposition or their underlying competitive pressures. Some companies eventually develop some great reports and a dashboard for their executives or senior managers. However, few companies effectively use a Key Performance Indicator in a way that SAP can strategically steer their business into the future.
Key Performance Indicators should refine the metrics or goals which support processes for your business to compete in the marketplace. In other words, you need good measures for good business results. These processes, goals, metrics, KPIs, and all of the effort you have put into this then become the foundation of a solid business case for your SAP solution. Regardless of whether you use ERP, CRM, APO, BI, or other system implementation efforts, you still need to decide what is important and how you will measure it. Armed with these goals and the business case, you can then gauge the SAP implementation or upgrade project success. This is the SAP value-driven methodology. Here are some steps to get you started on your journey:
- Carefully evaluate your business value proposition. In other words, why do customers buy your products or services?
- Look at the industry as a whole. Where are the “points of frustration”?
- Consider what competitive pressures affect your value proposition and the customer “points of frustration,” and determine what organization(s) are impacted by those competitive pressures.
- Focus on developing a set of goals, metrics, and objectives that address those competitive pressures, so you can operationalize the strategies to address those pressures.
- Use the right people, processes, and SAP technology tools to address those new operationalized strategies. Implement the systems and technology to support the new strategies and measures.
- Develop a weighted index of those goals or metrics that appropriately considers your competitive pressures and your value proposition as your first KPI.
- Execute an organization-wide communication program about the new metrics and the new index. Discuss their meaning to the company in the marketplace.
- Provide an incentive (I recommend quarterly) for meeting certain KPI-related index targets rather than individual goals or metrics. This incentive will pull the company in the same direction, even with some of the competing demands that individual goals might create.
- Communicate to the organization you will perform an annual adjustment of goals and reset of the KPI index measure. Any incentives will be based on the new norm.
An Example of How to Correctly Use KPI
Probably the biggest problem I see with what many practitioners call KPI is that they measure activity and not results. Just as an illustration, consider this:
If you operate a call center and have defined a “key performance indicator” as the number of calls per hour per phone operator, you may not be measuring the right thing.
So, what is a proper KPI?
In the brief example of the call center, the company KPI (i.e. the Business result) might be customer satisfaction, customer retention, or customer acquisition. Those would be proper Key Performance Indicators that would filter down to the individual organizational measurements to show how a crucial business issue is being measured. In other words, measuring calls per hour might be a cost-based performance indicator (measuring activity), but is that really what is important to the business? Did you take the time to build customer loyalty (i.e. customer retention)? Was this a prior customer calling about an issue, and if so, did you take the time to try to regain their business? Or was this a brand new customer? In other words, what business issue are you trying to address with the activity you are performing and want to measure?
