If you can't measure it, you can't manage it. So goes the management mantra. Key Performance Indicators, or KPIs, all have to be managed. But whether it is customer satisfaction, cost of sales or absenteeism, the stuff you measure depends on your strategy.
That will not only be shaped by the kind of business - a reseller will have a very different set of key performace indicators or KPIs from an accounting firm. Strategy is also influenced by the economy. A slower economy means companies will have to start measuring different activities, and different parts of the business. Priorities change when you are working harder to stay afloat. KPIs for every reseller should be aligned with strategy which is in turn shaped by the economic climate.
The challenge for businesses now is complex. Resellers need to find what to measure, stuff that will keep people on top of their game in order to implement the strategy, or at least ensure that lost business is kept to a minimum.
What that means is that KPIs need to be constantly reviewed.
Many companies have not yet started adjusting their KPIs.
There are many reasons for this. First, the impact of the credit crisis has only hit home this year. Second, there is uncertainty.
Up until recent months, it looked like Australia would follow the rest of the world into a recession. It didn't, but the outlook while better than overseas is still uncertain. In that context, resellers will need to fine tune their KPIs to fit in with the economy.
But what KPIs are required? When the company is working harder and not generating increased revenues, or perhaps bringing in less, specialists say the KPIs should focus on sales effectiveness.
They might include progress towards quotas, number of contacts with a prospect, daily sales and sales trends.
To increase revenues, KPIs might also look to ensuring the effectiveness of the sales pipeline. How effectively is the sales team converting leads into sales?
Is the sales force working effectively in getting the leads that they've got?
How effective is the sales team generating leads?
How many inquiries does the company get when it puts up an ad?
How many leads do we get from that ad?
What's the total yield on advertising effectiveness?
What is the dollar value of each lead compared to the dollar value spent on ads?
How often are sales leads turned into a request for quotation?
And how many of those requests are converted into real sales?
In a sales constrained environment, companies have to focus on cost.
In boom times resellers were trying to produce as much as they could to satisfy demand.
Because of that, they might have been more willing to tolerate costs in order to get the product out. In tighter times, however, cost control is more critical.
This could generate real improvements in the business. Finely targeted sales KPIs might create efficiencies. Tasks such as market research and responding to billing questions, for example, could be handed over to other employees, or outsourced and that would free up sales representatives to spend more time on the phones and out in the field.
When companies start delegating tasks, the KPIs give them more control and allow them to monitor how things start tracking once the changes are made.
But the state of the economy and market suggests a third scenario might be emerging - cash constraint. With accountants reporting more insolvency work involving smaller companies, KPIs must move to cash flow, outgoings and money coming in. Resellers would also be looking at the spread of creditors, and their financial health.
Picking and choosing which KPIs to monitor is not easy and resellers should tread carefully to ensure short term cost savings do not cost more in the long-term.
A reseller could cut staff costs by X per cent to a level set by the KPIs. As a result, they could lose five or 10 people. However, if this results in a loss of skills, the company could also lose customers.
Changing and redesigning KPIs cannot be done overnight. While companies can easily come up with rough and ready numbers, the trick is setting up a management system, with review and control processes that ensure people are actually delivering the KPIs.
It might take a week to define and design them and several weeks to get up and running. As a rule, it takes longer in bigger companies, sometimes months.
Anyone running a 50-person business would have the bandwidth to be across all the numbers and they tend to have a strong gut feel for what's going on.
If the company is bigger than that, there is more delegation.
And in those sorts of companies, people are held to account for outcomes as measured by KPIs, not just the tasks.
KPIs are crucial for business but they need to be based on what is actually going on out there.
They need to have a touch of reality about them.
If they amount to a manipulation of accounting data, the company will suffer because in the end, they are not measuring the real world.
Go to page 2 for a detailed case study on the topic.
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