Few companies see dramatic transformations on their first attempt 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. But few companies make it to the area where they are effectively using a Key Performance Indicator to implement SAP in a way that strategically steers their business into the future.
Key Performance indicators should be developed to refine the metrics or goals which support processes for your business to compete in the marketplace. Okay, that was a mouthful. How about if we put it this way, you need good measures for good business results. These processes, the goals, the metrics, the KPIs, and all of the effort you have put into this then becomes the foundation of a solid business case for your SAP solution. It doesn’t really matter what solution, whether it is ERP, CRM, APO, BI, or other system implementation efforts, it is still important to decide what is important and how you will measure it. Armed with these goals and the business case you can then guage 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,” where are customers frustrated or disappointed with the industry as a whole?
- 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 that you can then “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, and its meaning to the company in the marketplace.
- Provide an incentive, generally provided quarterly, for meeting certain KPI related index targets rather than individual goals or metrics. Cause the company to pull together in the same direction regardless of some of the competing demands that individual goals might create.
- Communicate to the organization that an annual adjustment of goals, or of their weights will be performed and the KPI index measure will be reset each year and that any incentives will be based on the new “norm.”
An Example of the Correct Use of a KPI as a Useful Business Measure
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 the call center below.
You need good measures for good business results
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 some issue and did you take the time to try to work with them to regain their business? 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?
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