“Opportunity is missed by most people because it is dressed in overalls and looks like work.” - Thomas A. Edison
Thomas Edison knew what he was talking about. While consulting with fast growth companies and delving into the complex problems they face, I see a consistent need for process identification, breakdown, and prioritization in order to choose Key Performance Indicators (KPIs). What I mean is the ability to break a large process into component pieces, put the pieces in some type of priority or rank order, and choose a few of the right ones to measure as KPIs. Lack of this knowledge is often the gravity (or drag) companies experience while trying to propel a company forward with faster growth and success.
The basics of succeeding with large efforts have been experienced, documented, and are easily accessible. General project management approaches offer a framework to break down a large effort into smaller component pieces. Agile and Scrum offer the same for technology teams, while Lean helps manufacturing, and there is Management by Objectives, Six Sigma, and on and on.
I see (at least) two key areas where your ability to break down large efforts will pay off.
Payoff 1 - Successful Completion of Projects. Unless you’re an engineering or technology company, there is good chance that you don’t have a consistent or certified approach to managing the time, resources, and scope of projects.
Every major project is, from a high-level perspective, the same. There is usually more than one team member working on many elements. Imagine that you want to move your office. You’ll need to lease or purchase space, obtain an occupancy permit, licenses, painters, cleaners, movers, technology, a plan to manage customers during the physical transition, and to calendar time for it all to happen. Take any of these steps in the wrong order or leave one off altogether, and nothing (good) happens. Try moving into your space without a permit. Yeah, nothing good will happen.
It seems simple enough that if you’re in charge of the building move, you shouldn’t order technology installation like computer wired connections (isn’t everyone wireless now?), phone connections, and TV/Monitor mounts before you have walls moved/installed for your new office layout. You think that’s obvious, right? Then, why are things ordered and completed in the wrong order all the time by smart people in various industries?
Payoff 2 - Identifying Leading Indicator KPIs. KPIs are like gauges on your car dashboard. You can move confidently forward when you know that there is gas in the tank, the engine isn’t overheating, the battery is being recharged, etc. The moment your gas gauge reads empty and the red light comes on (along with that annoying sound), you begin to change your driving behavior. Specifically? You look for a gas station. It’s the same for good business KPIs; understanding the smaller components in a larger process allows you to create your KPI dashboard which tells you when you need to change your behavior.
When I onboard new clients, I often see one of two problems:
Problem 1 - They can’t determine what their KPI “gauges” should be. They don't know if they need the business equivalent of a speedometer, tachometer, gear indicator, temperature gauge, or gas gauge for that matter. In this case, I help them look at the whole company. The question might be, what do customers pay for? What are the steps that create what they get paid for? Which steps will tell us if we are on track or could be an early warning that we’re going to fall short?
Problem 2 - For leaders who can determine appropriate KPIs, they often try to measure everything. When I first began working with one client, they had over 175 KPIs that they wanted to measure. If a process had 6 steps, they wanted to measure all 6. This amount of measure will overwhelm teams and dilute their attention. Everything has the same priority and attention (or lack of). It took time and discipline as we pared the KPI list to 18, then to 12, and finally, down to 7.
Great, you say. But, how do I determine the best KPIs to measure, especially when my list is 175 KPIs long? Or how do I break down a process for improvement? I’ve found that the simplest approach is to break down your process before it breaks down your business.
Follow this list to kick-start your effort:
Process or Problem. Identify what results you want to achieve or improve - like moving your office, improving your sales margin, reducing your labor cost, etc.
Desired Results. Stephen Covey called it "Begin with the End in Mind." Fast forward mentally to the end of the project, quarter, or whatever you’re measuring. Now, think about how you would know you were successful. Describe it in detail. Somewhere in your answer, you’ll likely find the right target to measure. Now determine Red-Yellow-Green status so you can measure progress regularly.
Dig Deeper With Questions. Ask questions about what drives or creates the results you are looking for. The first answer may sound good, but often is not the best one for us to measure. It’s not insightful enough, doesn’t give us the decision-making information that we need fast enough. Keep asking why/how, at least five times.
For example, suppose we need to be sure we will meet our annual revenue target.
- Question: Why are we concerned about this? We’ve found historically that we don’t have enough sales power to reach our revenue goal if we don't plan it out by quarter in advance.
- Question: What components make up our revenue calculation? # Leads, # Qualified Leads, Close Rates, Avg. Deal Size, % of Large Deals vs. Small Deals
- Question: What if we focused on improving Close Rates? We spent last year training our sales team to identify prospects, make presentations, overcome objections, and close deals. Any further improvement will likely not yield enough revenue to meet the goal.
- Question: How many small deals equal one large deal? Large Deals typically generate four times more revenue than Small Deals, so we need four Small Deals to equal one Large Deal.
- Question: What % of Qualified Leads are qualified for Large Deals? One in three Qualified Leads is considered a Large Deal.
- Question: Where do most of our Qualified Leads for Large Deals come from? Referrals
From the above six questions and resulting answers we might decide that the best KPI measure is # of Referrals per Quarter.
Drive Results: How will you know with good confidence that you won’t fall short of your revenue target? Keep this Leading Indicator KPI visible and top of mind throughout the year so you and your team can stay focused and make adjustments throughout the month, quarter and year to drive the results desired.
Analyze your current processes and projects, look for organizational patterns, relationships between ideas, break down processes and projects into components, determine priorities by distinguishing dominant from subordinate ideas (or a sequential order), and you’ll succeed at breaking down your process before your business breaks down. When your opportunity comes dressed in overalls and looks like work, you’ll be ready - Thank you, Thomas Edison.
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