Frank Buytendijk Blog

I would like to point you to an interesting website, called www.kpilibrary.com. It’s a community where you can post your key performance indicators and their definition, and get an overview of the KPIs others are using. Why reinvent the wheel if you can learn from what others have done. On this website, you can find KPIs in the area of sales, marketing, finance, IT and so forth.

It seems the community has over 40,000 members already.

Recently, I pointed to an interesting website, www.kpilibrary.com. Jgdprovily responded:

frank, with all respect, but maybe you do not fully understand what a key performance indicator is, it is a very critical measure for boosting performance and it differs from company to company, even they are operating in the same market and or branche. Just copying KPI's from a library is the dummest thing one can do, and dangerous too.

I don't want to get into a definitions debate on what is a key performance indicator, just a performance indicator, a measure or a metric, but there are indeed different types of performance indicators, based on operations and efficiency, and the ones that are more strategic of nature and focus on business effectiveness.

I think we would all agree that a key performance indicator for human resources would be the absenteeism rate. Lagging of nature, compared to employee satisfaction, leading of nature in terms of organizational productivity. Everyone would also agree that moniting the days sales outstanding (DSO) is an important metric in financial operations, and in today's economy even a key indicator. Conversion rate would be a bottom-line in marketing campaigns and sales channels, no one would argue about that. But does it make sense to come up with your own definition, because it differs from compay to company? Probably not. In fact, organizations would be wise to copy a commonly understood definition. This allows you to:

* benchmark performance, compared to other companies
* get ready quick, so management can spend time on the performance indicators that DO differ from company to company
* save cost on the reporting, by making use of standard software.
Oracle's BI Applications are actually built with these purposes in mind.

But indeed, some performance indicators are unique, the ones that are connected with the strategy of the organization. It is pretty clear that one attribute of a successful business strategy is the extent to which it differentiates in the market. It is hard to be a winner with a me-too strategy. And even when you are operating in the same market, and have a similar strategy, then there is still a difference in the core competencies and the management maturity of the organization, making that different key performance indicators are needed. Copying those from a library would indeed not be very wise.

Treacy and Wiersema defined three core strategies: operational excellence (aka cost leadership), customer intimacy and product innovation. They point out you need to excel in one of them to be successful, and simply score sufficient in the others. Perhaps this is a guideline on how to choose where to take standard definitions, and where not.

Blindly copying performance indicators from a library can be a dangerous thing, as my reader points out. But trying to do everything yourself is equally dangerous. The answer, as usual, lies in balancing the two.

I recently visited a large event in Slovenia, that was organized very well. I was interviewed there on Enterprise Performance Management.

Here's the link.

frank

Creating value is the most important objective of every organization, but it is also the hardest to define. Creating shareholder value is perhaps the most tangible way of looking at value creation. We can look at the market capitalization, net present value of expected dividend streams, and the share price. Maybe the fact that it is relatively easy to measure and calculate shareholder value has been an important reason behind the popularity of the concept. But because something is easy to measure doesn’t mean that it is the right measure of success.

I’ve come to think of creating value as the role an organization plays within its performance network. For me, an organization is a unique collaboration between stakeholders who realize that individual goals can only be reached by working together. One of the articles in this issue defines the True Value Index, a measure that takes such collaboration into account. Regardless of whether you believe in stakeholder value or shareholder value, you probably agree that profit is important for any commercial organization. It is the oxygen of a company; it keeps the organization alive and allows it to sustain and grow. In today’s market, there is particularly heightened interest in managing profitability, and VJ Lal’s article sheds some light on how this works.

To understand profitability—or any other key performance indicator—a good enterprise performance management (EPM) system is required to obtain the right data, to distribute the correct information to the right people, and to analyze the results. Ivo Bauermann describes what an EPM system needs to look like to be up to the task. James Taylor warns against the opposite effect. We should avoid the overinstrumented enterprise, otherwise we only keep track of the score instead of focusing on the actual game—running a business. This Journal also includes an interesting case study that, coincidentally, comes from my home country, The Netherlands. Centraal Boekhuis is the main logistics provider for the local book publishing industry. It uses business intelligence (BI) not only to support management decision-making and reporting, but also to share information with stakeholders. In fact, information is a service that Centraal Boekhuis sells. In this case, BI creates value very directly.

As with our previous topic (Organizing for Management Excellence), we will devote two issues to the subject of creating value. Please contact me to submit an article for the next Journal. In the meantime, download the Journal here.

frank