1. The 4 mistakes that leave you wondering about your business performance

    April 6, 2018 by ahmed

    measure_success

    Originally posted on SavvySME

    • Measuring your business performance is a difficult task, but if not done with care and the right tools.
    • Some mistakes businesses commonly make is using KPIs not specific to your business and ones that focus on actions, not results.
    • Other mistakes include staff not engaging with the business’ desired results and searching for the nonexistent “perfect measure”.

    A long common issue we come across when we talk to business owners and executives is the difficulty they have determining whether their current performance is on track to achieve their operational and longer term strategic goals and objectives.

    Often our conversations with clients start something like “I have to convince my board members, managers or business owners that we will achieve our goals. How do I do this, and how do I give them evidence to show that we are on track to do so?”

    Most businesses have some sort of performance measures or KPIs. However, choosing the right measures is fraught with difficulty. Managers often struggle with finding meaningful KPIs, and then struggle again to obtain buy-in from management and staff. The result is KPIs that measure activities and not outcomes, that are vague and meaningless, and that lack ownership from key stakeholders.

    Firstly, it is important to understand the true purpose of KPIs. Meaningful KPIs provide objective evidence that shows the extent to which actions and decisions lead to the achievement of organisational goals. At Clear Path, we believe KPIs are about driving continuous improvement, and providing a reference point to gauge the extent to which you are on the right track to meet your objectives. While they are key in driving a high-performing workplace culture, we believe KPIs should not be seen as a tool for judging and punishing staff.

    Below, we will go through some of the most common mistakes we see people make when setting KPIs for their business.

    Mistake 1 – KPIs not specific to your business
    The first mistake relates to how businesses identify the KPIs that they intend to use. Often this is done by compiling a list in a haphazard manner, through brainstorming sessions, searching the net, or by adopting ‘off the shelf’ KPIs that other organisations use. The problem is that these KPIs are generic and not specific to their business and their individual objectives. It does not allow the business to focus on what matters to them, and they are certainly not aligned to their strategy. Additionally, they tend to be meaningless or very difficult to measure and usually include fluffy words such as ‘effective’, ‘improved’, ‘reliable’, ‘efficient’ etc.

    Mistake 2 – Focus on activities not results
    Another critical mistake is to use KPIs that focus on business activities. For example, ‘number of customer interactions’, ‘number of widgets produced’, or ‘hours worked’ are all activity based measures. Why is this a mistake? Because it focuses on tasks rather than results. For KPIs to be truly effective, they must focus on the desired results. This includes short-term objectives as well as long-term strategic goals. Some examples of results a business may want to monitor include ‘customer’s value our products and services’, ‘our people are engaged’, and ‘our customers have great experiences with us’. See how these are focussed on the desired result rather than on activities?

    When we look to develop measures around the results we wish to achieve, it forces us to seriously consider the end-state that we want to reach. This, in turn, makes it easier to determine meaningful measures for those results. Using the above examples, for the result of:

    • “customers value our products and services”, we may consider measuring Net Promoter Score or an organisational reputation measure.
    • “our people are engaged”, we might consider measuring staff satisfaction, or employee turnover rates.
    • “our customers have great experiences with us”, we might consider measuring customer effort or customer journey cycle time.

    Can you see how the measures are focused on the results that we want to achieve? If you want your customers to have a great experience with your organisation, measuring customer effort (the degree of difficulty in dealing with you) and customer journey cycle time (time from placing an order to receiving the product), provides two pieces of objective evidence on this. Obviously, we can then set specific targets for each of these measures.

    Mistake 3 – No buy-in and ownership of KPIs
    We mentioned earlier the difficulty of getting buy-in from management and staff in implementing measures. Staff and stakeholder buy-in is fundamental because without it these people will not use the KPIs to help guide their business decisions and ultimately not be active in helping your business meet its objectives. At Clear Path, we have found the most successful approach is to get key staff involved in determining not just the measures, but also the desired results of the organisation, at all levels. Ultimately this should paint a picture of the organisational day-to-day and strategic objectives across all levels, and allow everyone to see alignment from their day-to-day activities through to the organisation’s high-level strategic purpose. Our experience shows that by getting stakeholders to identify and agree on the desired results, they will accept the KPIs that are identified to measure these same result areas. This is additionally true when staff and management appreciate that the KPIs will not be used as a tool to ‘punish’ them.

    Mistake 4 – Searching for the ‘perfect measure’
    When identifying measures of your key results, the single most important thing to consider is not whether a measure is the ‘perfect measure’ or whether a measure has ‘perfect integrity’. What’s important is whether the measure has enough accuracy and reliability to be trusted as a source of information that will lead to making better decisions than making no decision, or making an uninformed decision. There is simply no such thing as the ‘perfect measure’.

    As we stated earlier, performance measuring is about continuous improvement and focusing on the things that matter. When that becomes embedded in the organisation, it becomes an organisation with a high-performance culture that achieves its goals and objective.


  2. How many KPIs do I need? (fewer than you think)

    June 18, 2017 by ahmed

     

    Originally posted on Intrafocus

    If there is one thing that we are really good at, it is measuring things. If it moves, measure it. If it doesn’t move, measure how long it stays still. We are convinced that if we can measure it, then we can manage it. And the result? We spend more time measuring than managing. When running a large operation, clearly we need to measure a lot of things, but when we are managing a business, day to day operational measurements become less important. Running a business requires us to measure those things that contribute to our business objectives and ultimately our vision for the future.

    We therefore concentrate on Key Performance Indicators (KPIs). The measurements that are key to the performance of our business strategy. So how many KPIs are required? It is here that we often fall into the trap of mixing operational measures with business KPIs. On the whole, operational measures are easy to find or define. For example, on a manufacturing assembly line, it may be important to clock people in and out to ensure they get paid correctly, but the hours they work may or may not be relevant to the business strategy. It all depends on whether or not there is a strategic (or business) objective related to the workforce. At best, hours worked may be a contributor to a KPI.

    The number of KPIs is directly related to the number of strategic objectives a company/organisation has. The number of strategic objectives is dependent on the resources and time available to meet the objectives set. Given that just about everyone in a company/organisation has a ‘day-job’, the time left to focus on strategic objectives tends to be small. In a study by Franklin and Covey they talk about the whirlwind of the day job. The whirlwind sucks us into all of the activities that are required to keep the organisation running and leaves no time for anything else.
    To put an effective, measurable strategy in place, the number of strategic objectives has to be small. there is a law of diminishing returns:

    • If I plan to do 1-3 things, I will achieve 1-3 things
    • If I plan to do 4-10 things, I might achieve 1 or 2
    • If I plan to do more than 10 things, I will achieve nothing

    Simply put, I will fail if I spread myself too thinly. When creating a strategy using the Balanced Scorecard methodology, we look to put no more than three strategic objectives into each of the four perspectives. The rationale being, each perspective will have its own skill base and resource set. At a minimum, each strategic objective will have one KPI associated with it and certainly no more than three. So how many KPIs do I need? At a minimum 12 and at a maximum 36. Follow the rules, tried and tested over 20+ years of usage, and you cannot go wrong.


  3. The ONE metric which tells you if your product’s got Mojo

    April 3, 2016 by ahmed

     

    Originally posted on Linkedin by Amit Somani

    It is every product manager’s dream that their users love their creation. Does your product have mojo? Google defines mojo as follows:

    mojo

    Most analyse all sorts of metrics to see whether their product has got mojo. Some look at repeat visitation, user engagement, session time, organic growth, virality coefficient etc. These are all fabulous metrics and you can’t live without them. Yet, there is one super simple metric that tells you whether you have a product that users love.

    Its called Net Promoter Score (NPS).

    Users need to answer a single question that asks them if they would recommend your product. That’s it. They give you scores ranging from 0 (worst, no way) to 10 (best, have asked my mom to buy it). Based on the rating, NPS can be calculated as:

    NPS = Promoters [# of ratings of 9, 10]- Detractors [# of ratings 0 thru 6]/ Total

    Don’t let the simplicity of the formula fool you. It is quite profound. And here’s why:

    It captures people that *love* your product less the ones that don’t. The key ingredient is Promoters who rate you 9 or 10. Those users don’t just like your product; they don’t just think it’s cute; they don’t just think it’s a nice to have but they LOVE it and would put their stamp of approval recommending it to their near and dear ones. As soon as a user is willing to put themselves on the line for YOUR product or a service, you’ve got a winner. Users pay you for your product with money, time and trust. And when they are willing to evangelise your product, it’s priceless!

    Still not buying it? Well, think of how many products that you would recommend to others that you have used in the last month? Last year? Probably less than a handful. It is an elite, exclusive club.

    Let me point out of some of the companies that have scored high NPS scores year after year. They include the likes of Nike, Apple, American Express, Costco, Netflix, Starbucks, etc. All these score over 60% on NPS. Some of them are over 70%. That’s astounding. That’s not just 60-70 people voting 9, 10. That’s 60-70 *more* people voting at the highest level compared to people that vote 6 or lower. That’s staggering. It is no surprise that these are legendary brands.

    Does NPS have any correlation to the core business?
    NPS has a direct impact on several business metrics. By definition, it is a measure of ‘Customer Satisfaction’. In many studies, customer satisfaction has shown itself to be directly correlated to revenue.

    NPS also has a direct correlation with your marketing effectiveness. It gives you an understanding of the otherwise fuzzy word-of-mouth quotient for your product. The higher the NPS is trending, the lower your cost of acquisition (CAC) should be. It can also be a leading indicator for customer churn, which will have a direct impact on your revenue. Last but not the least, it helps you get a sense of the elusive Lifetime Value (LTV).

    How and when should you measure NPS?
    Just ensure you a pick a random, statistically significant set of users to poll. You need to pose this question to them right after they have experienced your product. It is important to ask them while the entire experience is fresh in their mind. That’s it. If you are an Ecommerce portal, you might ask them right after they have bought something. If you are an airline, you might ask them right after they have completed a flight with you.

    As for the frequency, you should do it with different cohorts ever so often. For most young companies, I recommend doing it monthly or quarterly. Don’t look at just the absolute score but look at how you are trending month on month.

    Does NPS only work for Consumer (B2C) companies?
    NPS can work for any company. It could be B2C, B2B, online, or even offline companies.

    In fact, you can make this notion work for even your employment brand – aka Employee NPS. Let’s say you survey your employees and ask them would they recommend this as a place for their friends to work? No wonder, companies that get most of their hires through referrals are often the best places to work at.

    Where all can you apply NPS ?
    Once you get the basic score, you can get quite granular with NPS. You can break it down to various parts of your experience. For example, you may ask how was our on-boarding or signup process? Or, how was the post sales process? How about the NPS for the call centre?

    You may apply NPS to users acquired through different marketing channels. It may be interesting to see the NPS differences of users acquired from Facebook vs. say Google or Apple.

    One should view the NPS as a framework. You can define and apply in your business context as appropriate.

    What is NPS not good for?

    NPS is a great, simple, single metric for customer delight. NPS can act as a bellwether sign to the health of your product or service. It does depend on effective and random sampling and hence may not be representative of all users. It is also not a replacement for any of your usual, granular marketing and product metrics. You still need to measure conversion rates, user engagement, referrals, user retention, etc.

    Go ahead and implement NPS. It will take you little time to do it and give you a phenomenal return on investment. Use the NPS as leading indicator and in conjunction with your other metrics. Once you try it, I am confident you will be a Promoter for NPS!


  4. Measurement Madness

    May 10, 2015 by ahmed

    Originally posted on Management Focus by Dr Andrey Pavlov

    One of the UK’s major airports was looking to cut the time passengers spent inside the terminal following landing, and the management identified that the longest part of the passengers’ journey was spent waiting at the luggage carousel.
    To solve this problem, a performance measure was quickly introduced for the airport’s baggage handlers – ‘first bag to the belt’. The team were measured on how long it took them to start delivering the luggage after the plane arrived. The performance against this measure was climbing steadily, and the managers were pleased, until they noticed what was happening on the ground.

    The plane would arrive, the baggage handlers would pull up, take a smallish bag and give it to the youngest member of the team. He would then sprint to the terminal and slam it onto the belt – target met! The team then leisurely unloaded the rest of the plane, while the first bag continued to circle on the carousel. Not the outcome the management were trying to achieve.

    Measures will change behaviour. On one hand, this is good news – we introduce performance measures hoping that they will help people take actions that are aligned with the organisation’s purpose. On the other hand, they often encourage dysfunctional behaviour, as in the airport example.

    The trouble with performance measurement is that it tempts us with an illusion of control and a promise of accountability. We begin to believe that organisations can be engineered according to our desires and that measures and targets can give us the ultimate control over what happens tomorrow. But when measurement becomes a substitute for judgement, disaster is often just around the corner.

    There are three principles of performance measurement that will help you steer clear of such disasters:

    Numbers are not the reality

    When we look at reports, graphs and league tables, it is tempting to believe that they give us a clear picture of what is going on. However, more often than not they mask dozens of decisions, assumptions and concessions that make the information vague and difficult to interpret. For example, when comparing average pay in the public and private sectors, it’s easy to conclude that public sector employees are overpaid. However, this simple comparison does not take into account the fact that many public sector jobs, for example healthcare and education, require highly skilled people. This makes the conclusion flawed. When the age, education and qualifications of the employees are factored in, the pay gap practically disappears.

    Similarly, league tables, adored by politicians and regulators, always hide important differences and can mislead by presenting the information as less ambiguous than it really is. Treating these numbers as reality and using them blindly to make decisions can have disastrous consequences.

    Behaviour will change – but rarely in the way you expect

    The example of the baggage handlers is known as ‘gaming’ and can potentially do serious damage to an organisation. Gaming is always a reactive behaviour – it springs up in response to managers’ attempts to introduce performance measures and targets.

    Gaming can be found in any organisation. For example, in order to meet targets for seeing patients in Accident & Emergency within four hours, some NHS hospitals placed patients into a specially designated area, often in the same room, where the target would technically not apply. In other hospitals, patients were kept in ambulances so as to delay their arrival in A&E which would set off the clock on the fourhour target.

    It is often difficult to predict which shape the gaming behaviours will take. So after a performance measure is introduced, it is important to remain engaged and observe the impact that the measure is having.

    The tougher the control, the bigger the consequences

    It is not the measures themselves but the use of them for control purposes that produces dysfunctional consequences.

    The recent inquiry into evidence of police manipulating crime data, along with similar inquiries in the UK healthcare and US education systems, produced the same conclusion – gaming and cheating are driven by the extraordinary pressure to meet performance targets. As Warren Buffett once said, “Managers that always promise to ‘make the numbers’ will at some point be tempted to make up the numbers.”

    This, however, is not the only way. Performance measurement is a powerful tool for providing feedback, learning about an organisation, discovering trends and patterns, and enabling informed dialogue. It is when this power is overtaken by the desire to control that it turns into a catalyst for dysfunctional and destructive behaviours.


  5. How to do a Baldrige assessment

    May 8, 2014 by nick.halley

    assessment

     

    I am frequently asked about the elements of a Baldrige assessment, whether conducted as a self-assessment or externally conducted. The topic came up again during a discussion I was part of last week. In particular, what is the relationship among the various components of a Baldrige assessment. Here is my simple explanation for the three major components:

    1. The Organizational Profile (Category P in the Baldrige Criteria): This section is about what’s important to you. You describe your organization and its operating environment, key relationships, competitive environment, and strategic context.
    2. The Baldrige Criteria (Categories 1-7) responses: This section is about how you are accomplishing what’s important to you. In a systematic fashion starting with leadership and ending with results, you describe how your organization does what’s important to you for successful enterprise management and sustainability.
    3. The Scoring Guidelines: This section allows you to assess how well you are accomplishing what’s important to you. The scoring guidelines allow you to assess the maturity of your processes and their deployment, and the breadth and significance of the results you are achieving.

    We always speak of a systems approach to organizational performance management. The full system is a combination of all three pieces. Without all three it would be neither holistic nor a system.

    The most common incomplete use of the system is ignoring the Scoring Guidelines. They are the dimension that complements the seven categories of the Criteria. The Scoring Guidelines allow you to evaluate how mature your approaches are, how well you deploy them, how systematically you evaluate and improve them, and how successfully you align them with what’s important to you. For results, the Scoring Guidelines help you evaluate your current performance, your performance changes over time, how well your results compare with other organizations, and how successfully they address what’s important to you.

    Sustainability requires knowing what you are doing (the criteria), how well you are doing it (the scoring guidelines), and how relevant it is to your needs (the organizational profile).

    Organizations frequently and appropriately start with just the organizational profile, because you need to know who you are before you can add more detail. In a recent Blogrige interview with Lisa Muller from Jenks Public Schools, she describes the value of the organizational profile.

    But once you know who you are, assessment requires the how (criteria responses) and the how well (scoring)!


    This blog was originally posted on Blogrige; the official Baldrige blog, by Harry Hertz, the Baldrige Cheermudgeon.