For a long time this topic has been a ticking time bomb within me and I now need to explode. The immediate provocation is the blog published by Bernard Marr on September 25, 2013 (http://www.linkedin.com/today/post/article/20130925053608-64875646-the-4-kpis-every-manager-has-to-use
Key Performance Indicator (KPI) is a derivative of Customer’s Experience, not an internal process measure. To be more specific, it is a measure of what your Product and / or Process Offering does for the growth of the Customer’s business. KPI is a critical instrument to measure the Innovation Index of your company; the Mind 2 Market and Time 2 Market impact that an enterprise Product and / or Services makes on its Customer Universe; which in turn helps create Growth and Wealth. KPI’s may definitely be derived from an enterprise balanced score card as Bernard eludes in his article; Not from your own enterprise score card but the Customer enterprise score card.
In the design of an enterprise process, KPI’s are derived after having modeled:
- The enterprise: Ideas / Concepts modeled afresh with metadata around a Product and / or Process Offering keeping the perspectives of Creating & Managing Demand mutually inclusively;
- Business Processes: Differentiating Core & Support processes to be implemented for a global enterprise depending upon the different Logic, Rules & Algorithms addressing the challenge of local requirements in a global system;
- Critical Success Factors: Addressing the Roles and the Capabilities (Capacity to Transform + Ability to Execute); Cutting Edge Enablers (Technology & Applications) & Infrastructure – Physical & Virtual Real Estate, Empirical & Analytical Data and Cognitive & Business Intelligence in a Networked, Connected and Secure global environment.
Key Performance Indicators: Performance is a factor what your offering serves the marketplace with. Therefore, in order to understand one’s Enterprise Performance Indicator, it is necessary to derive them from the Customer’s Perspective.
In a collaborative co-creating world, the Customer Satisfaction Index will not provide inputs to KPI. It is the Customer’s Growth Index (T2M) and (M2M) that will provide a Performance Indicator.
Example 1: Let us assume Intel manufactures the best microprocessor for personal computing in the world that increases computing speed by 10X, reduces cost of the microprocessor by 5X, increases its supply chain efficiency to deliver the product to global manufacturing locations in 40% less time than its previous or competition’s delivery and has 0 rejection rates with the flexibility of meeting the batch and co-branding requirements of all its OEM Manufacturers. All this is of no use if the OEM’s don’t see the benefit and take the product faster to the market and in the process generate a higher growth rate for themselves. The growth that an IBM or a Dell shows with respect to using the new microprocessor of Intel will directly show its impact on the four elements of the enterprise scorecard of the customer enterprise and similarly can be directly correlated to Intel’s score card. It is not the customer’s transaction but the customer’s experience of using the offering of Intel that will provide the indicator of performance to Intel.
Example 2: If we were looking at a Service Business such as Software Company, the solutions offered by the company must similarly impact the strategic levers impacting all the four dimensions of the balanced score card. Such experience of implementing the solutions of a software company that directly contributes to enriching the customer growth experience is what will deliver the Key Performance Indicator to the Software Services Company.
In my early days of a global reengineering engagement with an Engineering giant, it was noticed that the company was doing brilliantly everywhere in the world. Almost everywhere globally, the company managers always managed to deliver the Performance Targets set. This was one of the companies that implemented Six Sigma early as well. Investigations during the engagement revealed that the company was under-performing 100% globally on all the dimensions from the Potential identified in the Marketplace: Quality, Cost, Delivery, Service and Flexibility. The company had a monopoly in the marketplace, bullied its distribution network, kept manageable targets and the regions kept each other happy scratching each other’s back. All that has changed today and the global conglomerate struggles in the remotest of markets because there are smaller players who have broken the stranglehold and created new metrics around Quality, Cost, Delivery, Service and Flexibility that exposes the difference of what Performance could have been delivered by this company with its deep pockets and vast resources.
The Indian Software Services Companies are a classical example of this phenomenon. As long as the margins and the international currency rates were favorable along with cheap labor conditions, they flourished in their performance. One could argue that they took advantage of the prevailing conditions of the marketplace and the customer readiness into consideration in running their businesses. But that takes care of the Finance and Customer satisfaction parts of the score card. What about Learning & Growth and Operations. These are the very factors that are coming to bite these successful companies and it would take disciplined management and not pots of money to turn these companies around to the value that they originally promised – which incidentally is a Performance Indicator.
Promoting management concepts has now turned itself into a great incestous business. There is a need for an honest appraisal of design within enterprises and they must discipline themselves to start building now for the immediate future. One must remember that KPI’s are meant for renewal and not for use. The former will enable an enterprise to scale from one threshold to the next higher level of capability while the latter will lull the enterprise into a stupor of hubris. The periods between bubbles must be extended and consequently the longevity of enterprises in the interests of societal growth.