A journey from a bad kpi to an excellent strategy

A JOURNEY FROM A BAD KPI TO AN EXCELLENT STRATEGY

Based on http://www.bscdesigner.com/a-journey-from-a-bad-kpi-to-an-excellent-strategy.htm

By Aleksey Savkin, bscdesigner.com

BSC DESIGNER

http://www.bscdesigner.com/


PREPARING FOR THE JOURNEY

• I was reached by a potential client from a Spain-based manufacturing company.



• He asked me for advice about a better kind of KPI.



• He asked me for advice about a better kind of KPI.

• I asked the client a few questions about his needs.



• He asked me for advice about a better kind of KPI. • I asked the client a few questions about his needs. • It became obvious for me that the actual problem

was not with a KPI, but with a strategy.• I will use a dialog style to tell a story about what

was discussed.

A NEED FOR KPI REVEALS A PROBLEM WITH A STRATEGY

A need for KPI reveals a problem with a strategy

Alex, we need some help to come up with better KPIs…

We need some KPIs that will track our progress in improving business

performance…


Alex, we need some help to come up with better KPIs…

We need some KPIs that will track our progress in improving business

performance…

What strategy are you going to execute to improve the performance

of your business?


Well, our strategy is the elimination of any poor business

performance… Do you have a KPI for this?


Well, our strategy is the elimination of any poor business

performance… Do you have a KPI for this?

I could have found an indicator that would show you the level of the underperformance

that you have, but it won’t help you to perform any better.


In my opinion, what you actually need to do first is to come up with a good strategy.

AN APPROACH TO FINDING A BETTER STRATEGY

Isn’t “elimination of the poor performance” a good strategy?


Isn’t “elimination of the poor performance” a good strategy?

Well, it is not a strategy.

“Poor performance” is a very vague definition of the problem that your business

has experienced. “Elimination of the poor performance” can be a goal, but a strategy is more about objectives than about goals.


If you want my advice I would suggest the following:

1 Start with an analysis of the reasons of the

problem.

3Formulate these factors as actionable

objectives.

1. Invest time in researching the reasons for the poor performance;


problem.


objectives.

2Map results to show a

connection between factors.

2. Map results to show a connection between factors


problem.


objectives.

3. Come up with some good actionable objectives that will address the

underperformance problem;




problem.


objectives.



4. Find key points that will tell if a hypothesis actually works.

4 Find key points that will tell if a

hypothesis actually works.


problem.


objectives.



5. Add some indicators that will help to keep track of your progress towards

achieving these objectives.

4 Find key points that will tell if a

hypothesis actually works.

5 Track metrics, numerical

values for these key points.

STRATEGY IS NOT A GUARANTEE OF SUCCESS

Do you guarantee that this will work?



Here we are talking about making an informed assumption about what might

be the reasons for the poor performance and what might be good solutions to this

problem.



This is a kind of business hypothesis. As any hypothesis it might work or might not

HOW-TO GUIDE FOR GETTING BUSINESS INSIGHTS

Do you suggest using a certain business framework to analyze the current situation and come up with solutions?

Something like SWOT?


Do you suggest using a certain business framework to analyze the current situation and come up with solutions?

Something like SWOT?

Business tools like SWOT, 7-S, Balanced Scorecard, Competitive Analysis, etc. will

guide you and your team.


Although the best business insights will be rather spontaneous breakthroughs based

on the experience of your team.

SOME TOPICS TO STIMULATE CREATIVE THINKING OF YOUR

TEAM

1STIMULATING CREATIVE THINKING

Put yourself in the customer’s shoes. What can be done better?


Have a look at your competitors, their products and services. What can you learn from them?


What limiting factors (constraints and bottlenecks) do you have in your business environment?


Instead of adding something to your business consider removing something that might be holding you back.


Model your processes on the paper or in software, visualization helps

WHY IT DID NOT WORK IN THE PAST


We did something similar in the past and it did not work out well…


We did something similar in the past and it did not work out well…

What exactly happened?


What exactly happened?

Well, we did a kind of brainstorming and we had a list of excellent ideas. In few months I understood that we had progressed in just few of them that were really close to what we have been doing before


I guess we just lost focus. I thought that some new KPIs could help us…


But after trying some I’ve found that they worked as another formal routine that our employees hated. KPIs were reported, but no one had an idea about what to do with this information


But after trying some I’ve found that they worked as another formal routine that our employees hated. KPIs were reported, but no one had an idea about what to do with this information

I think the first step when you brainstormed ideas was the right one. The problem appeared because those ideas were

neither aligned with each other nor with a problem.


Actually, the problem itself was not properly diagnosed.


Actually, the problem itself was not properly diagnosed.

It went sort of like this…


Sales department suggested developing a discount program; marketing told us that we needed to add two more products to satisfy our clients’ needs;


Engineering argued that we needed to try a new technology.


We did just a superficial analysis of the problem and started shooting out solutions.

MAP THE FACTORS OF FAILURE


I suggest you to start with the proper diagnosis of the problem.


It won’t be as simple as “this prevents us from performing well.”


Most likely you will find a number of interconnected factors.


Moreover, some connections and correlations won’t be really clear to your

team


Moreover, some connections and correlations won’t be really clear to your

team

What can we do to stay focused?


What can we do to stay focused?

Creating a map where factors are linked to each other to represent a cause-and-effect connection between them (BSC Designer

software can help with automation of this).


These factors can be easily transformed into objectives. And your goal is to focus the

company’s efforts on a few objectives that will be more likely to lead

you to success.


These factors can be easily transformed into objectives. And your goal is to focus the

company’s efforts on a few objectives that will be more likely to lead

you to success.

It appears that the ideas of marketing to add two more products had nothing to do with our poor performance. Our clients would only be confused with new products.


Can an opposite idea (removing some products) work for us?


Can an opposite idea (removing some products) work for us?

Normally reinventing a product line helps to focus a company’s efforts on what matters.

Take Apple’s strategy as an example, when Steve Jobs focused on

cutting their product line.

THE ROLE OF KEY PERFORMANCE INDICATORS (KPIS)


It appears that the major part of the job is about making a careful diagnosis of why things happened as they did…


What about KPIs? Which ones do I need?


What about KPIs? Which ones do I need?

When you put all parts of the diagnosis together you can come up with a strategy to address these problems. KPIs will help you

to see if you are on the right track.


Yesterday this answer would sound logical to me. But after our conversation I’d like to ask you to be more precise…


What exactly do you mean by “seeing if we are on the right track?” Can you give me some examples?


What exactly do you mean by “seeing if we are on the right track?” Can you give me some examples?

For example, what problem do you want to solve by eliminating some of the products

from your product line?


Would you like to cut some engineering and marketing expenses, or do you plan to make

your customers pay more for advanced versions of your product?


Indicators are supposed help you to track your progress towards these goals. You can

use indicators that will measure certain types of engineering expenses and/or …


… you can come up with an indicator that will confirm that customers are buying an

advanced version after the old one was removed from your product line.

Now I see how pointless my initial request was for a KPI! Thank you for focusing my efforts in the right direction.


By the way, why do you say “indicator,” and not a “KPI?”


By the way, why do you say “indicator,” and not a “KPI?”


I’m trying to be careful about using terms like metrics, indicator and KPI. People tend to call a KPI any metric, but not all metrics

are KPIs.


Metrics might become a KPI only when placed in a certain business context. By the way, that’s why a long list of KPIs from the

Internet don’t work.

Let me summarize what I have learned:


SUMMARY

1 • Start with an analysis of the reasons of the poor performance problem that we have.

• Use various business methods to stimulate the creative thinking of my team.

SUMMARY

2 • The results of this analysis need to be mapped to show a connection between various factors.

• The strategy map automation functions of BSC Designer can be used.

SUMMARY

3 • Formulate these factors as actionable objectives where it is possible;

• Together with my team we will come up with an action plan.

SUMMARY

4 • Find some key points that will tell us if our hypothesis about what needs to be done to solve the initial problem actually works.

• Track metrics, which are the numerical values for these key points.

SUMMARY

That’s an excellent summary! With BSC Designer you can actually automate not only

a strategy map, but also the KPIs. Your action plans can be aligned with KPIs and

business objectives.

SUMMARY

Most people download and try the software just to manage KPIs, but now you see that one will spend more time on the “Strategy

map” tab on KPIs.

SUMMARY

Most people download and try the software just to manage KPIs, but now you see that one will spend more time on the “Strategy

map” tab on KPIs.

My first thoughts about the software was exactly as you described. I’m happy that my understanding of how business challenges need to be addressed was changed.

SUMMARY

Thank you for your help and for your excellent software!

SUMMARY

Thank you for your help and for your excellent software!

You are welcome! Nice to see you among the users of BSC Designer!

MY QUESTIONS

Have you faced the same problems in your business? What are your favorite methods

to get business insights?

MORE ABOUT THE BALANCED SCORECARD

Find more insightful articles about the Balanced Scorecard in ”Articles” section at www.bscdesigner.com

BSC DESIGNER

http://www.bscdesigner.com/balanced-scorecard-articles.htm



THANK YOU!

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A journey from a bad kpi to an excellent strategy

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