An alternative view of ‘KPI”

Oct 11, 2019 | Customers, Marketing

 

We all understand the term ‘KPI’, Key Performance Indicator. It is always used as a term to describe internal performance metrics.

Our customers employ us to deliver value, a solution to their problems, a means to deliver some sort of gratification. Yet, we use as performance measures things that are of importance to us, usually irrelevant to customers. Sales revenue, margins, share of wallet, customer churn, inventory turn, factory efficiencies, and so on.

How many of your customers give a toss about your factory efficiencies or sales revenue?   The reason they came to you is that you made them a promise, sometimes unspoken via your brand, sometimes explicit via your advertising.

Perhaps the KPI metric should be reversed to ‘Kept Promise Index’.

The promises we make have no positive weight unless they are kept, then they carry weight. When promises are not kept, they also carry weight, far greater than when they are kept, but it is negative weight.

In my experience, a promise not kept is remembered, commented upon, often generating disproportionate  anger and frustration to be vented somewhere, usually these days on social media.

Last week my internet service went down without notice for 16 hours, as always, right in the middle of a research project. I will remember that, and act on it, whereas for probably 99.9% of the time, the service is there, uninterrupted, at my demand, but that is the promise, so I will not necessarily remember that 99.9%, it is simply expected.

However, when the promise is made explicit, and it comes with a guarantee, it can become a huge marketing benefit. For example, if I was a plumber servicing domestic  markets, I would explicitly make two promises: turn up when promised, and leave the work site cleaner when we leave than it was when we arrived, or there is no charge.

I think there would be a premium price in that, as it is a guarantee of a promise to be kept!

How many of your KPI’s would your customers care about?

 

Header cartoon courtesy Scott Adams and ‘Dilbert’

How to avoid being misled: Measure the drivers, before results.

Oct 9, 2019 | Management, Small business

 

The old cliché that you get what you measure, is right. You want more of something, make it a KPI, measure for it, and the chances you will get it are dramatically improved. The corollary is that you need to ensure that what it is that you are measuring is really what you want.

This obvious cause and effect is sometimes called The Lucas Critique, after the economist Robert Lucas, who in a 1976 paper, articulated the obvious fact that economic policy when implemented, drives changes in the  outcomes that were inconsistent with the assumptions made when the policy models were developed. This is because the assumptions remain fixed, insensitive to the changes in the behaviour the policy drove.

It put a mathematical framework around the better known Goodhart’s law, which simply stated is: ‘When a measure becomes a target, it ceases to be a good measure’ 

Therefore, choosing measures is a task of vital importance. You have to adopt measures that calibrate the drivers of outcomes, not the outcomes themselves, or you risk getting a lot of something you do not want, or need.

As a young product manager, I worked for a business that had sales volumes as the driving KPI for the sales force. Not unusual, and pretty well balanced, as the marketing function set the prices and therefore had nominal control over gross margin. However, sales personnel had control over promotional expenditure, which was budgeted as a percentage of sales.

Towards the end of the financial year when volumes were behind budget, an additional incentive was put in place. If sales budgets were achieved, the annual sales and marketing conference would be moved from the usual haunt just down the road in a dingy hotel, to a resort in the Whitsundays, and partners were to be invited.

The sales force went all out, and in the last 2 months of the year significantly over-achieved the sales budget, and we all went to a terrific location and had a holiday. However, the holiday came to a shuddering halt as the sales for the first few months of the following year came in. The sales force had achieved volume targets by stacking the retailers warehouses with product in the last two months of the previous year, boosting booked sales revenue, but delaying the timing of promotional expenditure to the new year. There was never a chance of catching up and achieving either the volume or net profit budgets in the following year. However, we did have a great time at the ‘conference’ .

You will get what you measure, just make sure it is what you want.

 

How do you delight a customer?

Oct 7, 2019 | Customers, Marketing

Delight the customer has become a cliché, popping up in all sorts of places from PR blurb, to websites, mission statements, and sales rev-ups.

However, few seem to have any real idea of what it really means, can put a solid foundation under the fluff, to make it something meaningful.

I asked the question recently of a group, one of whom had used the words as a throwaway.

 ‘What does delight the customer mean to you’?

I got the expected fluffy strings of adjectives and adverbs back, until someone at the back of the room came up with what I think is the right answer.

She said, ‘We provide an answer to a pressing problem for our customers that is dramatically superior to anything else they have seen’

Do that, and no matter the words, your customer will be delighted.

 

Photo credit: David Woo via Flikr

The often fatal flaw of the Family business

Oct 3, 2019 | Governance, Management, Small business

Family businesses have many advantages over publicly owned entities, largely around the pressures that apply to investment decisions.  They can, and often are, made with timeframes that would be unacceptable to a publicly listed company.

They also often contain the seeds of their own destruction.

On top of all the usual human pressures that exist in every enterprise, ambition, envy, personal gain, and all the rest, you also have the dynamics of family, and often multiple families, overlaid on the more usual pressures.

The mixture can be toxic.

It takes considerable leadership skill to address these added pressures, usually driven by the sense of entitlement that comes from: ‘it is our business, therefore we can do what we like’.  

There is no easy fix I have ever seen, but recognising a problem, catching it early and creating an environment where merit, and not bloodlines is rewarded, is a good first step.

This statement assumes two things: that there is a performance management system that is unbiased towards anything other than merit, and that there is a cultural understanding that bloodlines come second to performance.

A very unusual combination in my experience that requires rare leadership qualities, and extended self -awareness.

I have trouble thinking of a more challenging situation than having to fire your child, for whom you have built and nurtured an enterprise, because they are not the right person for the role they covet. The downside is if you do not, the non family members who are the backbone of the place will leave very quickly, or at best, tread water while it suits them, adding little real value in the meantime.  

Often an antidote is to have an outside advisory board of some sort that acts as a sounding board, advisor, performance manager, and sometimes executioner.

 

Header photo credit: Amar Chauhan via Flikr.

Who, and How, do we trust?

Sep 30, 2019 | Governance, Leadership

 

 

To me it is a paradox that we have never been so connected, and yet we have never been so polarised and isolated.

With all the information we could possibly hope for, we as a society seem to avoid using it to make sensible rational decisions that will stand logical scrutiny. 

We humans evolved in groups of around 150, according to the well accepted theory first posited by British anthropologist Robin Dunbar. It is the number of people with whom we can maintain stable personal relationships. 

Richard Edelman in his presentation at the Davos conference earlier this year put it as, ‘Trust is local, and very personal’. The comment is based on the 2019 version of the long running Edelman Trust Barometer. It seems to reflect the ambiguity of our evolutionary selves, limited as we are to Dunbar’s number of 150, and our modern  selves, inundated with ‘friends’ served up by the connectivity of the net.

We have substituted the ‘natural’ depth of a relatively few relationships, with the breadth of many superficial, perhaps illusionary ones.  I have 800 connections on LinkedIn, and while I have been very careful, really only know a small number. There are 6,000 names, email addresses and phone numbers in my contacts list, all of whom I have physically met at some point in the last 20 years, but again, really know only a tiny percentage of them.

In a complementary piece of research to the Edelman barometer, the  IPSOS  Global trustworthiness index showed that scientists are the most trusted profession in the world, followed by doctors. Globally, politicians are the least trusted group. 

In other words, the group least trusted by people are those who are instituting the policies that impact on our lives, often in contradiction of the suggestions of the most trusted group in our midst. Our children will inherit the impact of many of the decisions we make, should we not be making them with the best information we have, informed by those who understand it, in the best interests of those who follow us?

It seems not, and my head hurts trying to figure out why.

 

The photo in the header is lifted from a video taken at the UN last week where President Trump and Teen activist Greta Thunberg presented their differing views.  The most powerful man in the world, Vs a 16 year old Swedish schoolgirl. Who do you trust?